NOTES ON McDONALDS (MCD) covered call options
1. Around June 2, 2003, MCD breaks out through a resistance
level established back in late Nov. early Dec. 2002 after failing
to break that resistance level in mid May 2003.
2. MCD climbs up from $20.00 to the $25.00 range in a slow gradual
uptrend step like pattern. This type of pattern is an opportunity
for buy-writers because this type of gradual rise normally brings
about a decreasing implied volatility period which is great
for premium selling.
3. Notice the size of the daily vertical lines during the period
from mid-August 2003 to December 2003. The size of the lines
represents the daily trading range of the stock. As you can
see, the lines are very short which indicates that the stock
does not move much intra-day. Again, this is an indication of
decreasing volatility which is a positive sign for buy-writers.
Conclusion: The two most prominent and noticeable patterns both
bode well for buy-writers. The covered call options strategy
does not need a lack of movement, as much as slow, consistent
So, in the case of McDonalds above, the slow trending movement
of the stock brings about a decreasing volatility for the covered
call options. Added to this is the contraction of intra-day
movement, as shown by the decreasing range of daily trading.
These two factors each contribute to decreasing volatility and
provide an opportune time to write a covered call for the covered
. This is the type of pattern that offers both capital
appreciation as well as premium returns.