Schaeffer's Midday Options Update Features McDonald's.

CINCINNATI -- Today's Schaeffer's Midday Options Update features McDonald's (NYSE:MCD). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Options Update: Option Players Have an Appetite for McDonald's

Yesterday, all of the financial television stations used their ultra-cool "new Dow high" graphics; what would today hold? Initially, the picture looked bleak, with the Dow giving back ground thanks to disappointing news from Wal-Mart Stores (WMT) and news that the non-manufacturing sectors of the U.S. economy expanded at a slower pace during September. The ISM non-manufacturing index dropped to 52.9 percent from 57.0 percent in July, a larger-than-expected drop. Economists were expecting the index to drop to 56.2 percent. It stands to be noted that a reading greater than 50 indicates expansion.

In other news, the Energy Department and the American Petroleum Institute (API) released their weekly crude inventory data this morning. According to the Energy Department, crude inventories added 3.3 million barrels last week. The government's statistics were slightly higher than the 2.7-million-barrel increase reported by the API. According to the Energy Department, motor gasoline supplies increased 1.2 million barrels, in stark contrast to the drop of 2.8 million barrels reported by the API. Currently, a barrel of crude will cost you $58.40, which is 28 cents lower on the day.

Most-Active Options Update

At 1:16 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 11,770.0) is currently 0.36 percent higher and the S&P 500 Index (SPX - 1,340.25) has added 0.46 percent. Meanwhile, the Nasdaq Composite (COMP - 2,264.5) is 0.93 percent higher. At 1:18 p.m. Eastern Time, 2,437,289 calls have changed hands compared to 2,023,678 puts, equaling a single-day put/call volume ratio of 0.83. The CBOE's equity put/call volume ratio stands at 0.90, while the ISE's ratio comes in at 0.80.

McDonald's

Some days I have to scour over the chart to find an equity to write about; today, the options players made it rather easy for me. McDonald's (NYSE:MCD) shows up twice on our notably active calls list, and the corresponding puts show up on our notably active puts list. My initial reaction is that some options players have decided to open a few straddle positions. The October 42.50 call (MCDJV) and put (MCDVV) and November 40 call (MCDKH) and put (MCDWH) have all seen notable action today.

The 42.50 strike intrigues me. This is now the site of peak put and call open interest in the October series. It certainly seems to me that the options players are trying to capture the momentum that Mayor McCheese and crew may enjoy after the food firm's earnings announcement on October 19 (according to Zacks). The earnings come one day ahead of options expiration and could produce exactly the sizeable and fast move we look for in an option play. Which direction will the stock go? Let me check with Jocelynn's Magic 8 Ball . . . just kidding, we can't be sure which way it will move, so the straddle at 42.50 could be a prudent move. I question if better-than-expected earnings will vault the stock high enough to challenge 42.50.

I feel my question is a prudent one, and not only because I ask it. Look at a monthly chart for the baron of burgers. Notice that it has run into resistance at the 40 level. This is significant because it is the highest the fry guy's shares have been since late 1999. If the stock needs some support, it can be found in the form of its 10-month and 20-month moving averages. The last time the Big Mac daddy finished below this dynamic duo was April 2003.

Is there reason to believe that the stock will advance through this level? Yes, sales results are due, as are earnings. Both of these reports could give the stock momentum, if they come in better than expected. Unfortunately, there isn't much chance for a short-covering rally, as only one percent of MCD's float is sold short, and it would take nearly three days to buy back these shorted shares. In fact, this configuration leaves little chance for support should the stock take a quarter pounding thanks to disappointing results. Yes, the stock may find a floor in its 10-month and 20-month moving averages, but what can stop a fall if the trendlines give way?

MCD may be able to rely on its 10-week and 20-week moving averages as well. However, to find support at the former, MCD would have to fall to the 37 level.

I already looked ahead at MCD's short interest, so let's take a look at the rest of the sentiment for the Hamburglar's home:

* Percent of analysts tracked by Zacks who rate the stock with a "buy" or better: 75%

* Number of analysts tracked by Zacks: 12

* Short interest as a percent of float: 1.06%

* Short-interest ratio: 2.56

* Schaeffer's put/call open interest ratio (SOIR): 0.70

* SOIR percent rank: 43

* Schaeffer's Equity Scorecard: 6.0

All of MCD's sentiment is about as lukewarm as that double cheeseburger that has been wallowing under a heating lamp for the past half hour. There is little chance for upgrades to push the stock higher, and the speculative options crowd is neither bullish nor bearish.

So, do you want MCD to be the prize in the happy meal that is your portfolio? If so, hope that it is a straddle, as there is enough technical evidence that the stock will see a move (there just isn't a clear direction) amid lukewarm sentiment. Keep your ear to the ground for any news on MCD's sales and impending earnings report and watch for the Street's reaction.

Click here to see a Weekly Chart of MCD Since January 2004 and a Monthly Chart of MCD Since January 1998 With respective 10-Unit and 20-Unit Moving Averages: http://www.schaeffersresearch.com/wire?ID=17479 .

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About Schaeffer's Investment Research (www.SchaeffersResearch.com)

Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method .