Breakdown: I bought the MCD January $82.50 Calls and sold the Jan $87.50 Calls for $2.60 total.
Profitable – I make money on this trade if MCD closes above $85.10 on January 21, 2012.
Breakeven – If MCD closes at $85.10 by January expiration.
Unprofitable – If MCD closes below $85.10 by January expiration, then I lose the maximum I paid for the spread or $2.60.
The reason I like this trade: I am bearish on the stock market. However, I looked at my portfolio of stocks and I am long puts in almost every stock. I need some long exposure in case the stock market rallies. McDonalds (MCD, $85.03) does have strong exposure to Europe, but their chart looks great and they pay a 3% dividend. I like to get short weak stocks on rallies and buy strong stocks on dips. If McDonalds breaks the $80 level, I do not want to be in the stock anymore, so I think this Call Spread is great risk vs reward and has plenty of time to be right. They are a consumer play and have been able to pass the highs costs of commodities on to their consumers.
Andrew R. Keene