Burger King (BKC) stock rose 3.5 percent yesterday to hit a new 52-week high of $20.13. Shares of major fast-food chains are on the rise after industry leader McDonald’s Corp. (MCD) reported same-store sales increased over 6 percent in November. Same-store sales statistics, a metric measuring sales in stores open at least one year, is a key indicator of company health. Analysts expected McDonald’s to report 4.5 percent same-store sales growth. McDonald’s stock was down yesterday after reaching a high of $43.89 on Friday. Some analysts have increased their price target on MCD shares to $44 from $43. Suggesting McDonald’s might produce results exceeding per share profit for 2007.
Fast on McDonald’s heals are Wendy’s International (WEN) who has improved stock performance this year and Burger King who has expanded it’s market presence through store expansion.
Wendy’s shares were buoyed by the news Friday and shot to a high of $35.25, but have settled back down to close at $34.00 yesterday.
Competitors
Competitors for BKC include: McDonald’s Corp. (MCD), Wendy’s International Inc. (WEN), and Yum! Brands Inc. (YUM).
Burger King Pays Off Debt:
In mid-November, Burger King Holdings said it had paid off $15 million in debt using cash from operations, for a total amount of retired debt of $450 million since the company went public on May 18.This constitutes a greater than one-third debt reduction for the company. In May between $350 million and $392 million of the proceeds from the IPO were used to pay off debt and additional amounts were paid in July and October.
McDonald’s and Wendy’s:
McDonald’s Corp. hit a seven-year high Friday after the news of the same store sales reached investor’s ears. Many analysts consider impressive European growth as mostly responsible for McDonald’s stock price appreciation.
Analysts, claiming their profit projections may be unrealistic, have downplayed Wendy’s prospects. John Ivankoe, a JP Morgan Analyst stated: “”We believe the stock is pricing in years of sales and margin-driven earnings growth and we see limited opportunity for near term upside.”
Potential Trades:
We consider the fast food market segment attractive for covered calls investing. Considering covered calls stock options positions for fast food companies using the powerful tools provided by the PowerOptions website yields the following:
| Fast Food Sector Covered Calls 39 days to expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock | Price | OPTION | Expiration /Strike |
Opt. Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BKC | 20.13 | BKCAD | 07 JAN 20.00 | $0.85 | 4.20% | 3.70% | 3.70% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MCD | 43.04 | MCDAV | 07 JAN 42.5 | $1.40 | 3.30% | 2.10% | 2.10% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WEN | 34.03 | WENAG | 07 JAN 35.0 | $0.60 | 1.80% | 1.80% | 4.70% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Wendy’s covered calls stock options position offers the largest potential return at +4.7% (39 days), but requires Wendy’s stock price to appreciate in order to experience the maximum return. Wendy’s also has the lowest downside protection of all three at +1.8%. The Wendy’s position is out-of-the-money [OTM] and the other two positions are in-the-money [ITM].
The Burger King trade offers the largest downside protection at +4.2% and a nice potential return of +3.7%. The McDonald’s position is between the other positions with a potential return of +2.1% and downside protection of +3.3%.
OTM positions generally have larger maximum potential returns with smaller downside protection and ITM positions generally have smaller maximum potential returns but with greater downside protection. The OTM/ITM tradeoff illustrates the beauty of covered calls stock options investing; allowing investors to custom tailor their investments to match their individual risk/reward profile.
For more information about how to identify and research great option trades, visit the PowerOptions website. PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades and you will find the data you need to make quick, clear, and informed decisions. With PowerOptions tools, you can trade knowing you have found the best investment for your risk/reward profile.
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PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute a covered call investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing stock options positions.
[tags]BKC, Burger King Holdings Inc., MCD, McDonalds Corp., WEN, Wendys Intl. Inc., YUM, Yum Brands Inc., covered call investment strategy, investment strategy, option income, poweroptions, stock options[/tags]