3d • General discussion
McDonald's Is Dropping After Earnings. Here's Why It's the Most Asymmetric Opportunity Right Now
We'll get back to tech trades next post. But today I want to talk about something more boring, and more interesting.
McDonald's just dropped after earnings. It delivered strong results, offered cautious commentary on the consumer, and the stock has been drifting lower ever since. There was no gap down, just a slow, quiet grind. And this is exactly the kind of setup I look for.
McDonald's Q1 2026 numbers came in clean across the board; it earned $2.83 adjusted EPS (against $2.74 expected), generated $6.52B in revenue (against $6.47B expected), global comparable sales grew 3.8%, with U.S. and international markets both up 3.9%.
Management acknowledged pressure on the low-income consumer, but it had an answer. Value meals are holding traffic. The new Big Arch burger is pulling customers in. The business is not broken, but it simply told the truth about a difficult consumer environment, and in my view, the market punished it for the honesty.
The Options Market Got It Wrong, Again
Going into earnings, the options market was pricing in a 3.3-3.5% move. The actual move came in at -1.43%, followed by a slow drift lower over the next several sessions. This is a pattern. MCD's realized earnings moves have consistently landed around 1.7-2.2%, but the options market keeps pricing 3-3.5%.
Here's what makes this particularly exciting to me: IV didn't collapse after earnings. The IV Rank is still sitting around 44. For a mega-cap defensive with low beta, high margins, and an asset-light franchise model that generates cash in every economic cycle, that's a gift. The market is still paying you a significant volatility premium. The VRP opportunity is still sitting right here.
My Trade: Put Ratio Spread
This is not a directional bet that McDonald's will bounce. My structure is designed to harvest that volatility premium, with a favorable worst-case outcome already baked into the payoff.
My structure:
- Buy 1x 265 Put (July 17) @ $6.15, Sell 2x 260 Put (July 17) @ $4.20
- Max profit: $773, Net credit: $273, Probability of Profit: 80%, P50: 92%, Theta: $5.44/day
It enters for a credit, if McDonald's stays above 265 through expiration, both puts expire worthless and the trade collects $225. The sweet spot at expiration is the 260 strike, where maximum profit reaches $773 per spread.
The skew is doing something useful here: downside puts are pricing in more fear than the fundamentals justify, which means the short legs are paying out more relative to what the long leg costs. That geometry works when skew is elevated (right now, it is).
The Worst Case Is Actually Interesting
If McDonald's drops to a level where this position hurts (below 252) it means you can acquire one of the greatest businesses ever built at a price the market rarely offers. A company with 50+ consecutive years of dividend growth, a business model that has generated cash through every recession, every inflation cycle, and every panic of the past 70 years.
And at these depressed prices, the dividend yield approaches 3%. Add the premium already collected from this trade, then add the covered call premium you can systematically sell against the assigned shares going forward, and suddenly the worst case becomes a genuinely attractive income position in a world-class business, with multiple streams of cash flow working in your favor while you wait.
The trade wins in the vast majority of scenarios. And in the scenario where it doesn't, we still win. If MCD does break convincingly below 255 and continues lower, we also have active management tools as outlined in my Trading Plan: we can convert the structure into a butterfly to cap downside exposure, or convert it into a strangle to collect additional premium and reduce our cost basis even further.
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McDonald's Is Dropping After Earnings. Here's Why It's the Most Asymmetric Opportunity Right Now
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