Here is a full trade recap on the recent McDonald’s ($MCD) trade - I took this particular trade, as did many others within the Trader’s Thinktank. This was almost a 10/10 setup for me personally. I recorded a video going over this specific trade: https://youtu.be/8npefo6TtOw
We first identified $MCD 200 and 198 key levels in Wednesday's Trader's Hangout (if you missed it, view the recording here: https://www.youtube.com/watch?v=_XVnWt6iESo). McDonald’s had an unfavorable reaction to its earnings report, which supplied us with a catalyst.
Graphic One: Daily chart of $MCD highlighting the recent earnings miss and move through support.
Price action opened in the 10/24/19 trading session below the 200 price point. There is not a clean setup for me in this area, so I had planned on waiting for prior day low's (198) to be breached as a continuation play to the next major support levels, at 195 and 190.
Graphic Two: 15’ chart of $MCD highlighting the key level at 200, as well as the reference point at 198 (prior day low)
As price action pushed through 198, I positioned into 10/25 expiry 200 strike puts, as I had only planned on being in the trade intra-day and expected the move to be quick. I was out within 10-15 minutes. I would have stopped out of this play on a move over 198.3/198.4 area, referencing prior day's action.
I sold this trade for a nice profit into the strength of the move (if I remember correctly, it was ~20% gain). It was important to sell into the strength of the move because of the nature of the option spreads. At the time of entry, the spreads were around 10%. This is a little too wide for my liking, so by selling into the strength of the move as opposed to waiting for a pull-back or trailing stop, I can secure a better exit. Because of the wide spread within the options, this trade was not a true 10/10 from a grading standpoint.
Graphic Three: 5’ chart of $MCD highlighting 3 different entry points to short the stock with puts.
Price action later provided a solid wedge formation to trade against, however I did not take either of the following entries.
Did you find this trade recap useful? If so, comment below and let me know on Twitter @Opinicusholding