These Stocks Continue To Go Higher
June 27th, 2011 
Genius There is a lot of volatility in the markets these last couple weeks. The DOW is up 100 points then down 124 the next. Then up again, then down. But overall the short term trend has been down.
But there is a sector that is doing well.
Fast Food. Well not exactly fast food, but whatever they call the sector that is lower than the sit down meal with the waiter.
Take a look at CMG – Chipotle. And PNRA – Panera Bread. and MCD – McDonalds.
All doing well, all at 52 week and all time highs.
Why? Well run businesses with pricing power. But also because they are growing by building more stores, mostly overseas.
All 3 of these are in my retirement accounts and will stay there for years to come.
I JUST READ AN ARTICLE ABOUT THE GROWTH OF MCDONALDS IN CHINA, IT SOUNDS LIKE THEY ARE REALLY GOING TO GROW.
GOOD PICK
MERRILL
Years to come ? You’ll feel differently when the market corrects and wish you were more patient to buy rather than at all time highs
I already own these. And if the market corrects more than it already has, I will buy more.
You and Cramer are on the same page there…(I think he’s a good guy too…)
Hi Allen,
I gave up on stocks. I am done with trying to be right. I realized I dont have to be “right” if I become an expert on credit spreads and iron condors just focus on those most of the time. There are more directional and low probability option trades that I am going to learn more about. Even trading options on stocks I dont care for that much. Just SPY, IWM, DIA, and RUT..
This is my opinion and how I feel but of course if you like those stocks and they are working for you then by all means buy some shares.
These are also good for credit spreads, and MCD is an awesome stock for butterflies. Less volatile than SPY, RUT etc.
WHAT TYPE OF SPREAD WOULD YOU DO ON A BUTTERFLY FOR MCD?
cANT GET MY HEAD AROUND HOW TO PRICE THESE OPTIONS. aLSO, AT WHAT PRICE WOULD YOU GO OUT? aLL INFO IS APPRECIATED.
Right now, this month I have done the following:
Sell 45 July 85 Calls
Buy 45 July 90 Calls
Sell 45 July 77.5 Puts
Buy 45 July 72.5 Puts
I can make about 11%, been in the trade 18 days and am up 6.4% so far. Some months I only do credit spread on MCD, others I do both sides.
Your selling and buying 45 contracts?
Yes. 45 contracts of each leg of the trade.
good core holdings,check once a year and enjoy your stock diet
Allen, how do you play butterflies on MCD? Regular options or Weeklies? Which strikes? Profit target?
I play the monthly options doing something like an iron condor but closer to the money on one side. It is something I have been doing for a long time now. Profit target 10-12%. I sell one side at the money and one out of the money depending on which way I think the stock is headed.
Agree with you 100 per cent that these stocks are good long term holds, especially MCD, although the all time highs puts me off buying them now. The market does seem to be on a short term down trend, though not sure how long it’ll last. Experimenting with options on futures now (selling), especially commodities. Looking good so far.
Don’t sell naked. Futures are 90% technical and when the volatility increases they raise the margin requirements and you get slaughtered. Been there, done that. Stick with spreads.
interesting comments!
These 3 stocks look good, although in keeping with others’ comments, it seems like we may be able to buy them at lower prices in the future. I think I will put them on a watchlist.
Faizuk, I am beginning to learn about futures. What options strategies on which futures are you currently using? Do you recommend any particular places to learn about futures and options on them?
Thanks in advance.
Dan
I’ve just started experimenting so a long way to go from here! Its a combination of naked, strangles and spreads. I prefer commodities as the fundamentals are easier to work out, but I don’t rule out anything. I would highly recommend reading ‘The Complete Guide to Option Selling’ by James Cordier and Michael Gross. At the moment I have a naked Sep 600 Put on Wheat, and a strangle on 30 year T-bonds (Sep 136 Calls and 116 Puts). Futures and Options brokers are usually good sources of information, but you have to do your own research to make sure that they won’t overtrade for you! Best of luck
Allen
You are so right about the naked positions. When the price of wheat fell, the premium on the put increased by 4x! However, with wheat I’m very bullish on the fundamentals so willing to stick it out. Thankfully it has been easier on the T-Bonds because of the spread.
Never thought of doing iron condors on stocks or futures options, but would probably give it a shot.
I tried following some of the suggestion in the book you mention but found that they were just not accurate. The leverage used in futures is so great that it does not matter if you sell options 1 year from expiration and super far out of the money, if the price moves, which it eventually will, your position will get hurt and hurt a lot. You can be down several hundred % in a naked option trade very quicky trying to follow the plan laid out in that book. that is why i told you, DO NOT TRADE NAKED OPTIONS, especially in futures.
Thanks for the tip! is that why you stuck to stock options?
Allen and Faizul,
Thanks to you both for your instructive comments!