Analysts have been raising their price targets (PTs) for McDonald’s stock (MCD) over the last month. Meanwhile, my price target 4 remains 19% higher at $371 per share. Shorting out-of-the-money puts and calls works here.
MCD closed at $311.23, up from its recent low of $300.72 on Dec. 2, as well as $296.37 on Nov. 3. This article explains why McDonald’s stock could be worth almost 20% more and several ways to play it, including shorting out-of-the-money (OTM) puts and buying in-the-money (ITM) calls.
I previously wrote about how cheap McDonald’s stock was in a Nov. 7 Barchart article, “Is McDonald’s a Buy? Its Strong FCF Margins Imply MCD Could be 23% Undervalued.”
The article showed how McDonald’s free cash flow (FCF) could rise to $9 billion next year based on a projected 40% operating cash flow margin.
This is 22% higher than its trailing 12-month (TTM) FCF of $7.392 billion, according to Stock Analysis.com.
Using a 29.4x multiple, the same as a 3.4% FCF yield metric, McDonald’s could have a market cap of $265 billion over the next 12 months (NTM). That is the implied metric from its TTM FCF yield.
That is 19.3% higher than its present market cap of $222 billion, according to Yahoo! Finance, setting a 19.3% higher price target (PT) for MCD stock:
$265b NTM mkt cap / $222b mkt cap today = 1.193
1.193 x $311.23 price = $371.30 price target (PT)
Stock analysts have been raising their PTs over the last month. For example, Yahoo! Finance reports that the average PT of 37 analysts is $331.20, up from $330.10 as seen in my Nov. 7 Barchart article. Similarly, Barchart’s mean survey PT is now $337.53, up from $336.43 a month ago.
Moreover, AnaChart, which tracks recent analyst write-ups, says 22 analysts have an average PT of $352.03. That is over 4% higher than the $338.35 PT from a month ago.
The bottom line here is that MCD stock remains very cheap and could have significant upside over the next year.
One way to play this, as I wrote last month, is to set a lower buy-in point by shorting out-of-the-money (OTM) puts for extra income.
I suggested selling short the $290.00 strike price put option expiring Dec. 12, 2025. At the time, MCD was at $301.47, so the $290 strike price was $11.47 lower, or -3.8% out-of-the-money (OTM).
The midpoint premium available for a short seller was $3.34 per put contract. That works out to an immediate yield of 1.15% (i.e., $3.34/$290.00).
Cut to today – a month later – the 12/12/25 expiry $290.00 put option price is down to just 10 cents. In other words, this has been a successful trade (i.e., $3.34-$0.10 = $3.24). Most of the money has been made, so it makes sense to roll this trade over.
For example, the Jan. 9, 2026, expiry period shows that the $300.00 strike price put has a midpoint premium of $2.01. That provides an immediate yield of 0.67% (i.e., $2.01/$300 = 0.0067).
MCD puts expiring Jan. 9, 2026 – Barchart – As of Dec, 5, 2025
That strike price is a similar distance OTM – i.e., -3.61% as in the prior short-put play last month.
This provides an investor with a potentially lower buy-in point, if MCD falls to $300 ($300-$2.01 = $297.99). That breakeven point is -4.25% lower than today’s price.
However, this yield is lower than last month’s short put play. So, it also might make sense to buy in-the-money (ITM) calls in further out periods.
For example, the Sept. 19, 2026, expiry period shows the $300.00 call option has a midpoint premium of $30.00 per call option. That price could be partially financed by shorting puts.
MCD calls expiring Sept. 18, 2026 – Barchart – As of Dec. 5, 2025
Here is how that works. Over 60% of the premium could potentially be paid for if an investor sells short $300.00 puts every month for 9 months:
$30- ($2.01 x 9) = $30 – $18.09 = $11.91 potential net cost
$11.91 / $30.00 = 39.7%
This could provide good upside if MCD rises to $371.00 on or before Sept. 18, 2026:
$371-$300.00 strike = $71.00 intrinsic value
$71 – $30 premium cost = $41, or
$41/30 = 1.36667 -1= +36.7% ROI, and
$41/$11.91 potential net cost after shorting puts = 3.442 -1 = +244.2% ROI potential
The investor could make a potential 36.7% buying ITM calls, vs. holding MCD shares and making just 19.3% (as shown above). Moreover, if the investor can sell OTM puts and reduce the cost to $11.91, the potential upside is +244%.
That is why it makes sense to both short OTM puts and buy ITM calls for stocks like this with good potential upside.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
The UK is preparing to regulate the cryptocurrency sector
under the supervision of the Financial Conduct Authority. The government aims
to introduce consumer protections that are...
Cable looks ready to extend a short-term uptrend!
Think GBP/USD will see new December highs in the next trading sessions?
Here’s what we’re seeing on the...
