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Good Time to Buy McDonalds (NYSE: MCD)

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August 21, 2012 – Comments (0) | RELATED TICKERS: MCD

Market Summary

Most of the major stock indexes have been creeping higher and finally hit their four year highs over the past few days. As has been the case for most of the year, the possibility of Central bank intervention is the fuel that is supporting the market. All year long the U.S. Federal Reserve has been dangling the prospect of more stimulus funds to boost the stock market. Recently the European Central Bank has got into the act by openly discussing ways to support the struggling Euro economy. There is an ongoing debate about how much effect all this stimulus spending has on improving job growth. But there is no doubt about investment markets getting a big boost. With stocks hitting new highs, more investors are coming off the sidelines and chasing stock prices higher. Even with recent market gains, a lot of investors are still leery about further upside movement – stocks usually crash without warning with prices at high level, similar to what the past few summers.

 

Investor Analysis

You can't win if you don't play. Smart investors are participating in the market bullish trend by buying defensive names that are expected hold up well if prices do pull back. For example, today even though the overall market was down, McDonalds Corp. stock ended on a high note.

 

Possible Strategy

Investors who don't want to miss out on the markets move higher and yet have protection if prices turn south should consider purchasing McDonalds Corp. call options. McDonalds (NYSE: MCD) stock price has been down the past week or so trading at its recent support level. The past few days the stock has been moving up and technically it appears ready to get back to higher prices from a few weeks ago. Purchasing the September MCD $87.50 strike price call option would cost $1.50 per share (based on yesterday's close), but would generate gains the further McDonalds' stock moved above $88 anytime prior to September 21st. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

 

By Gregory Clay

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