Big call volume in MCD

Discussion in 'Options' started by dmo, Jun 4, 2008.

  1. dmo


    If you look at MCD June calls, there was huge volume today in consecutive ITM calls - the 45 calls through the 52.5 calls. On previous days these barely traded.

    Does anyone have a theory what this is all about? Thanks.
  2. nkhoi

    nkhoi Moderator

    mcd now takes credit card so if you are low on cash, charge it. Taking one month to pay for your lunch, it's a good deal.
  3. They've been taking credit cards for more then a year. Was yesterday an X-div day in the stock? That would explain high volume in call spreads, I have not looked but there may have been a lot for dividend lottery spreads
  4. allin


  5. LOL shows you how often I eat at McDonalds. Took my 2 year old son there for breakfast bout 7 months ago and noted they took CC's. Cant recall the last time before that.

    Did anyone look at x-div?
  6. dmo


    Where's the best place to get info about dividends and x-div dates?
  7. TYtrader


    Went ex dividend today. That's why the big spike in volume.
  8. dmo


    Well that explains some of it. I'm still not clear why that generates such massive ITM call volume.

    Xflat - if you have a moment - what are dividend lottery spreads?

  9. Dividend Lottery Spreads is a play that market makers will do with each other, it’s not really a retail traders strategy.

    On x-dividend day it’s a certainty that most of the calls which should be exercised to capture the dividend via the long stock from the exercised calls will in fact get exercised. The other side of the coin is that there are always a small percentage of sloppy investors who don’t realize their mistake and fail to exercise those calls. The idea for the market makers is to try and maneuver them selves on to the short side of the open interest in strikes which should be exercised for the dividend play.

    It goes like this: There needs to be a fairly decent amount of open interest in two strikes which should be exercised. Then the market makers will trade that vertical call spread with each other for dead fair value, and they’ll do it back and forth each time they’ll submit an exercise card for the long side right away. Now granted they may trade more spreads then there is open interest and this wont change the OI one bit because all the calls they have traded will be exercised. The catch is that on the short side of the spread they will now be part of the OCC’s random assignment sequence and there hope is that since not all investors will know to exercise those call that the market makers will not get assigned on all of the short side of the spreads they did. This would result in long stock from the side of the spread they exercised netting off the short calls they hope they don’t get assigned on and they then collect the dividend on the long stock basically free aside from their transaction costs.

    It used to be a lot more popular years ago when both investors were less sophisticated and therefore more OI went unexercised and options were single listed on individual exchanges so the market makers were not battling ones on other exchanges to get into the pool of unexercised calls.
  10. TYtrader



    xllent xplanation
    #10     Jun 6, 2008