Large Option Traders Bet Against McDonald's Following CEO Exit

Shares of McDonald's Corp MCD are down 3% on Monday following the unexpected departure of the company’s CEO Steve Easterbrook. Following the news, some large option traders are making some unusually large bearish bets against McDonald's in the post-Easterbrook era.

The Trades

On Monday, Benzinga Pro subscribers received five option alerts related to unusually large trades of McDonald's options. Here are the four largest:

• At 10:06 a.m., a trader bought 1,000 McDonald's put options with an $185 strike price expiring on Jan. 17, 2020 near the ask price at $3.70. The trade represented an $370,000 bearish bet.
• Less than a minute later, likely the same trader bought another 910 McDonald's put options with a $180 strike price expiring on Jan. 17, 2020 near the ask price at $2.26. The trade represented a $205,660 bearish bet.
• At 12:05 p.m., a trader bought 545 McDonald's put options with an $190 strike price expiring on March 20, 2020 near the ask price at $9.47. The trade represented an $516,115 bearish bet.
• At 12:51 p.m., a trader sold 600 McDonald's put options with a $170 strike price expiring on March 20, 2020 at the bid price of $2.75. The trade represented an $165,000 bullish bet.

The three largest McDonald's option trades on Monday represented a combined bearish bet of more than $1.09 million. The largest trade of March $190 put options has a break-even price of below $180.63, suggesting more than 4% downside for McDonald's shares over the next four months.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small size of the largest McDonalds trades by institutional standards, they are unlikely to be hedges.

See Also: How To Read And Trade An Options Alert

Life After Easterbrook

Easterbrook was let go from his position due to violating McDonald’s policy on relationships with employees. McDonald’s USA head Chris Kempczinsky is taking over in Easterbrook’s place.

In a statement, Kempczinsky said there will be no “radical, strategic shift” in McDonald’s business strategy. Easterbrook has been credited with implementing an extremely successful turnaround at McDonald's.

Since Easterbrook took over as CEO in 2015, McDonald’s share price has nearly doubled. Although Kempczinsky reportedly worked very closely with Easterbrook on implementing efforts to turn around the company’s American business, the market clearly sees Easterbrook’s departure as a blow for the company.

Benzinga’s Take

The large bearish options traders betting against McDonald’s seem to be anticipating the company will struggle to deliver the same growth numbers it has produced in the Easterbrook era. However, the fact that Easterbrook’s firing was due to personal misconduct rather than financial or business-related misbehavior could be a silver lining for investors under the circumstances.

The stock traded around $187.79 at time of publicatino.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.