McDonald's (MCD) - Get Report stock has rebounded from its post-Brexit selloff, as we predicted it would. When we made that prediction, we had recommended purchasing the July 8 call option with a $116 strike price. Here's an updated chart showing McDonald's stock price.
As of about 30 minutes into Thursday's session, the 116 call has increased in value to a bid of 3.65, so it can be sold to close at about $356, after deducting a $9 trading fee. Remember that this option had a net cost of about $197 on Tuesday morning, so this is a profit of 81% in just two days.
Now is a good time to sell and enjoy that profit. You might be thinking that the stock has been climbing, mirroring the rebound in the broader market. You also might ask why it's a good time to sell when an even larger profit is possible by waiting a few more days. But there are no guarantees, and why scoff at an 81% profit in only two days? Consider the risk of holding the option in the hope of more profits. With only eight days remaining till this call option expires, time decay will be rapid. With the three-day weekend approaching, the change from Friday to Tuesday could be significant, because time value declines on days when the market is closed. By Tuesday only four days will remain until the last trading day for this option.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
Besides blogging atTheStreet.com,Michael Thomsett alsoblogs at theSeeking Alphaand several other sites.He has been trading options for 35 years. His website lists his options books: Thomsett Publishing Website- he has also published a paper in the current issue of the Journal of Technical Analysis - link at JOTA issue 69 -- this paper challenges commonly held beliefs about market efficiency and poses a trading system that can beat the market.