All Day McDonalds Breakfast is Coming to San Diego but Are Investors Hungry for McDonald’s Corp. (MCD) Stock?

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The fast food giant will begin offering all day breakfast at stores in San Diego next month. McDonald’s will be testing this new concept in San Diego stores to determine if this is something they would want to launch in broader markets. The move may be an attempt to stave off competition in the breakfast space from other chains like Taco Bell, who began offering breakfast items last year.

McDonald’s stock has been stagnant over the past 12 months, rallying only 0.3% over that time, as the company faces declining revenues and net income. Lower sales in the U.S. and currency headwinds abroad have weighed on the EPS of McDonald’s over the past 12 months. On the back of this disappointing year McDonald’s CEO Don Thompson stepped down and chief brand officer Steve Easterbrook was named his replacement.

The new CEO faces some serious challenges of declining sales and changing consumer tastes. This new market taste may be an effort to change things up at McDonald’s but will it be enough? Analysts at Bank of America have a $112 price target for the stock, a 14% premium from current levels, indicating that expectations for the new CEO are high. So if a trader wanted to play McDonald’s to the long side is there a way they can do it more efficiently with options?
With shares of McDonald’s Corp. (MCD) trading around $98.30 a trader can look to put on a trade known as a stock replacement strategy. With the options market implying a move of around $8.80 by September expiration an upside target of $107.10 can be calculated and used to set up a trade.

Trade: Buying the MCD Sep 90 Calls for $9.70
Risk: $970 per 1 lot
Reward: Unlimited
Breakeven: $99.70

This trade has a breakeven only $1.40 above the stock’s current price and is deep in the money so it will have a very similar P&L profile to a long stock position. This allows a trader to enter a position for much less capital than would be required for outright long stock.

Is Being Able to Hire A Plumber On Amazon Going to Drive Growth?

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Amazon.com, Inc.(AMZN) has announced that it will be launching a new service, Amazon Home Services, that will allow customers to shop and purchase different professional services such as housekeeping, plumbing, handiwork, and other professional services. Initially there will be 700 different services offered via the new marketplace. As convenient as this new service may be for Amazon shoppers investors are still wondering if this will help spur the next leg of growth for the online giant.

AMZN stock has been somewhat stagnant since gapping higher on last earnings and the stock hasn’t made a new 52 week high since January of 2014. Investors are looking for the next phase of growth in AMZN but the company’s more recent investments in same day delivery services, brick and mortar locations, and other low margin operations have yet to show investors what they are looking for. Is this venture into a professional services marketplace the answer to the growth question?

AMZN faces competition in this space but the players that are already established are dwarfed by the size of AMZN so this could position Amazon well. If a trader thought that this new service will boost growth for Amazon how could they get long without deploying all of the capital needed to buy the stock?

AMZN is currently trading around $374 in a 52 week range of $284-$389.37. The stock gapped higher on earnings and is up just over 20% this year so a trader may want to use a stock replacement strategy to get long AMZN. Let’s see how that breaks down.

Trade: Buying the AMZN Jul 340 Calls for $44.00
Risk: $4400 per 1 lot
Reward: Unlimited
Breakeven: $384.00

This is a lot of premium but it lets a trader get long AMZN with a P&L profile very similar to the underlying stock without having to tie up as much margin.

WANTED: Someone I Can Trust

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Forecasters have a tough job. They ponder reams of data, assign unknowable odds and then have to endure endless criticism for getting it wrong. Fortunately for them theyʼre thick-skinned, and clever too. As Author Darrell Huff mused in his seminal 1954 book How to Lie With Statistics, “If you torture the data long enough, it will confess to anything.”

Honestly, we donʼt mean to pick on forecasters. We truly appreciate their attempt to plot the road ahead. We just wish they get it right more of the time, especially considering some of the consensus gaffs this week:

  • U.S. Capital Goods Orders ex-Defense declined 1.4 percent vs +0.3 forecast
  • U.S. Durable Goods Purchases also declined 1.4 percent vs 0.2 percent
  • U.S. GDP grew 2.2 percent vs 2.4 forecast.

The team at Citigroup complies a running scorecard of economistsʻ forecasts compared to actual results. Simply put, better than expected data adds to the tally, disappointing data subtracts. Not only have economists been off the mark this year, economic trends have been particularly disappointing. As data guardian Chris Verrone of Strategas Research notes, the current “miss rate” is more than two standard deviations away from historical norms… meaning theyʼre only this wrong, and data only this bad about 2 percent of the time.

WANTED: Someone I Can Trust

In times of such uncertainty, coupled with an S&P 500 Index up less than one percent this year, we rely on the proven record compiled by value investor David Herro of Harris Associates, Morningstarʼs Fund Manager of the Decade in 2010. Davidʼs primary screen for identifying value hinges on three criteria:

  1. Price to Cash Flow less than 10 times (cheap valuation)
  2. Debt to Cash Flow less than 2 times (low leverage)
  3. Return on Equity 3-year average greater than 13.5 percent (profitable businesses)

We further narrowed Davidʼs criteria by omitting energy companies and utilities, reflecting our view on continued low oil prices and gradually higher rates. 32 stocks in the S&P 500 Index met our criteria. While we encourage investors to further narrow the list with their own fundamental research, as David too would advocate, we think this is an excellent starting point for finding value amid challenging economic trends.

Aetna Inc. (AET); Ameriprise Financial, Inc. (AMP); Avery Dennison Corporation (AVY); Bed, Bath & Beyond Inc. (BBBY); CA, Inc. (CA); CF Industries Holdings, Inc. (CF); Cigna Corp. (CI); Cummins Inc. (CMI); Delphi Automotive PLC (DLPH); Emerson Electric Co. (EMR); Flowserve Corp. (FLS); Fluor Corporation (FLR); Fossil Group, Inc. (FOSL); Franklin Resources, Inc. (BEN); The Gap, Inc. (GPS); Gilead Sciences Inc. (GILD); H&R Block, Inc. (HRB); Intel Corporation (INTC); The Interpublic Group of Companies, Inc. (IPG); LyondellBasell Industries N.V. (LYO); Micron Technology, Inc. (MU); Nordstrom Inc. (JWN); Northrup Grumman Corporation (NOC); Parker-Hannifin Corporation (PH); Ralph Lauren Corporation (RL); Raytheon Company (RTN); Segate Technology (STX); Symantec Corporation. (SYMC); Union Pacific Corporation (UNP); United Technologies Corporation (UTX); Wal-Mart Stores Inc. (WMT); Western Digital Corporation (WDC).

Consolidated Edison, Inc. (ED) Stock Spiked Lower Yesterday After 30 People Injured in NYC Explosion, Recovers Today

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An explosion yesterday in Manhattan is responsible for injuring 30 people and the collapse of a building in NYC’s East Village neighborhood. The explosion and resulting fires destroyed four buildings before being extinguished. As the story developed yesterday Consolidated Edison, Inc. (ED) stock sold off hard on reports that crews were working on a gas line in the building the day of the explosion.

ED stock sold off nearly 3% from open to close yesterday as news of the explosion and its possible causes continued to hit the tape. This move lower perhaps was perhaps overdone as today shares are recovering in a relatively flat market. Shares of ED are currently trading at $60.20 and are higher by 2.41% today but have yet to take back all of yesterday’s losses. So how can a trader play a possible recovery or further downside using options?

With ED options implying a move of around $3.75 by May let’s look at two different strategies:

Potential Bullish Trade: Buying the ED May 62.5-65 Call Spreads for $0.50
Risk: $50 per 1 lot
Reward: $200 per 1 lot
Breakeven: $63.00

This trade offers a trader 4-1 on their money if ED trades above $65 on May expiration.

Potential Bearish Trade: Buying the ED May 57.5-55 Put Spreads for $0.55
Risk: $55 per 1 lot
Reward: $195 per 1 lot
Breakeven: $56.95

This trade is offering a trader better than 3.5-1 on their money if ED trades below $55 on May expiration.

You Should Buy the New Birthday Cake Frappuccino, but What About SBUX Stock?

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To help celebrate the 20th anniversary of Starbucks’ signature frozen drink, the Frappuccino, Starbucks will be offering a birthday cake flavored Frappuccino for a limited period of time. Of course the drink will be delicious but is Starbucks stock looking appetizing to investors at this level?

Starbucks Corporation (SBUX) operates in 65 countries around the world and is one of the largest roasters and retailers of coffee and other food and beverage items. The company’s stock is currently trading around $94.80 in a 52 week range of $67.93-$99.20. SBUX has been performing very well this year with shares rallying more than 15% year to date. Despite red hot growth over the past 5 years analysts are still expecting SBUX earnings and revenues to grow over 15% this year. The addition of new food and beverage offerings at certain stores aims to spur new growth for the company.

The stock recently touched new 52 week highs on the announcement the stock will undergo a 2-1 split. The move is meant to increase shareholder value and liquidity ahead of what CEO Howard Schultz expects to be the next leg higher in SBUX earnings growth. With increasing revenues from food and other beverage sales and growth in earnings expected how can a trader take a long term position in SBUX using options?

With the options market implying a $8.80 move in the stock through July expiration we can calculate an upside target around $103.60.

Potential Trade: Buying the SBUX Jul 87.5 Calls for $9.00
Risk: $900 per 1 lot
Reward: Unlimited
Breakeven: $96.50

These calls have a 75 delta meaning they will behave just like a stock position but have a much more defined downside risk.

Options Market Alerts Traders to Kraft Foods-Heinz Merger Weeks in Advance

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Kraft Foods Group, Inc (KRFT) stock is trading around $81.80 this morning higher by over 33% on the news that the company will merge with global food manufacturer H. J. Heinz Company (HNZ). The merger has sent KRFT stock soaring but how could a trader have caught this move before the announcement?

One way to see announcements like this telegraphed in the options market is to watch for unusual options activity. Earlier this month, on March 10th to be exact, a trader put on a very large bullish options position in KRFT. On March 10th a trader bought 10,000 KRFT Jun 67.5 calls for $0.70. This trade hit the tape early in the morning and required this trader to lay out $700,000 in capital. At the highs today this position was worth nearly $16.1 million. IF a trader was able to spot this unusual options activity they would have been able to get in on the move ahead of the announcement.

Trade: Trader bought 10,000 KRFT Jun 67.5 calls for $0.70
Risk: $70 per 1 lot
Reward: Unlimited
Breakeven: $70.20

If a trader would have bought a 50 lot of these calls for $0.70 they would have profited nearly $78,000 at the highs.

What Does Google Inc’s (GOOGL) New CFO Mean for the Stock?

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What Does Google Inc’s (GOOGL) New CFO Mean for the Stock?
Google Inc. is a global tech company with operations in nearly every part of the tech space. The company’s stock is currently trading around $57900 in a 52 week range of $490.91-$608.91. The stock has been doing relatively well this year with shares rallying 9.3% year to date. Over the past 12 months however, the stock hasn’t done much. Shares of GOOGL are only higher by 0.08% over the past 12 months and investors are looking for a catalyst in the name.

One catalyst may be the recent announcement that Ruth Porat, ex Morgan Stanley CFO, will be taking the place of retiring Google CFO Patrick Pichette. Porat is widely regarded as one of the most powerful women on Wall St. and will be taking the spot at Google later this week.
So how can a trader take advantage of a potential management shakeup catalyst using options? If a trader was looking for a longer term strategy they may choose to employ a strategy like this.

Potential Trade: This is a stock replacement strategy that allows a trader to take a long term bet in GOOGL without tying up the capital it would take to buy the stock.

Trade: Buying the GOOGL Jan 2016 535 Calls for $75.00
Risk: $7500 per 1 lot
Reward: Unlimited
Breakeven: $610.00

A Quick Hit in Qunar Cayman Islands Limited (QUNR) on OptionHacker

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Qunar Cayman Islands Limited (QUNR) is a platform for commerce in the travel industry in China. The company’s stock is currently trading around $38.48 in a 52 week range of $21.00-$38.55. The stock ripped to new 52 week highs today as same very bullish order flow hit the tape in QUNR.

Earlier today a trader bought 1,250 QUNR Apr 40 calls for $0.75. This order is over 4x the average daily options volume in QUNR. Right after this order hit the tape the stock ripped to new 52 week highs and these calls gained in value with the stock. These calls have already traded as high as $1.05 on the day making this an extremely profitable trade.

Trade: Trader bought 1,250 QUNR Apr 40 calls for $0.75.
Risk: $75 per 1 lot
Reward: Unlimited
Breakeven: $40.75

If a trader would have bought a 50 lot of these calls they would have profited $1,500 at the highs that were reached in a matter of hours.

How to Play Further Downside Potential in Russian Markets with The Market Vectors Russia ETF (RSX)

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What is the short term fate of Russian markets? Economic sanctions have sent the country into dire economic straights but it seems that the worst is not over yet. The falling price of oil also puts pressure on the Russian economy and that pressure is reflected in the weakness of the Ruble and a collapse in Russian related equities. One way a trader can take advantage of further potential downside in Russian markets is with the Market Vectors Russia ETF (RSX).

The Market Vectors Russia ETF (RSX) is a fund that tries to emulate the yields and price performance of the Market Vectors Russia Index. The fund is highly linked to the Russian Index and invests 80% of its assets in securities that comprise the index, which is made entirely of Russian companies. Currently, RSX is up about 4% on the day and trading at $16.96. A full $4 off its 52-week low of $12.50, which was hit on December 1st of last year, while it’s still a ways a way from its 52-week high of $27.46 from July of 2014. The fund has total net assets of $1.88 billion and a year to date return of 21.80%. Despite this recent strength in the RSX weakness in oil and the possibility of more sanctions could provide traders an opportunity to short this bounce. RSX is still lower by over 28% over the past 6 months.

Potential Trade Setup: With the options market implying a move of around $2.70 by June expiration a trader can look for an options trade with a downside target around $15.30.

Trade: Buying the RSX Jun 16-15 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot
Breakeven: $15.70

This trade offers better than 2-1 on a traders money and gives a trader great short side exposure with a clearly defined level of risk.

Nike, Inc. (NKE) Looking Strong Ahead of Earnings

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Nike, Inc. (NKE) is one of the most recognizable brands on the planet. From Michael Jordan’s famed “Air Jordans” to the University of Oregon’s football jerseys (Nike founder Phil Knight is an alumnus), Nike is one of a few companies at the pinnacle of the athletic apparel sector of the economy. The company, which was founded in 1964 and is headquartered in Oregon, employs over 55,000 people and has a market cap of nearly $85 billion. Since hitting a 52-week low of $70.60 last April, NKE was unstoppable as it pushed itself to a 52-week high of $99.76 in early December. Since that time, NKE has held strong and is currently trading at $97.90, just $2 off that 52-week high. The company is expected to report Q3 earnings after the close today and according to TD Ameritrade Chief Stategist JJ Kinahan, there has been a lot of put selling at the March 95 strike price, indicating that investors are bullish on the stock ahead of earnings (Yahoo Finance). The stock has rallied on 5 of the last 8 earnings reports with an average move of about 5%. The chart is decidedly bullish and if it’s bullish earnings history holds true again, we could be looking at a new 52-week high in the athletic apparel giant.

My Trade: I am buying the NKE Mar 101-103 Call Spreads for $0.45
Risk: $45 1 lot
Reward: $155 per 1 lot
Breakeven: $101.45