Shares of McDonald's have lagged the S&P in the last three months and year to date, but one trader sees golden returns for the golden arches.
"There was a buyer of the January 2017 expiration 125 calls paying $3.15 to open," explained RiskReversal founder Dan Nathan when breaking down the $15 million bet on McDonald's. "Those break even at $128.15."
In order for the trade to be in the money, McDonald's stock would need to gain over 7 percent from current levels by January 17. While shares have been sluggish for McDonald's in 2016, the stock was one of the best performers in 2015, gaining 28 percent on the year.
However, McDonald's stock has dropped nearly 3 percent in the last two weeks ahead of Wednesday's options activity, which was three times the average daily volume for the company.
From here, Nathan illustrated McDonald's downward trend versus where the stock needs to get back to in order to net a profit for the $128.15 call strike. He warned, "When you think about buying calls that far out of the money, that long-dated, you're looking to define your risk."
Nathan highlighted a four-year period of consolidation for McDonald's ahead of a major breakout in 2015, which created a key level at around $110 to $105. Nathan potentially sees the technicals setting up for McDonald's to drop back down toward that range in the coming months.
"There's a gap down to about $110. That's the breakout level. That may be a good reason to define your risk looking out to the end of the year," concluded Nathan.