Dan Nathan's McDonald's Hedge

On CNBC's Options Action, Dan Nathan suggested that investors with a long position in McDonald's Corporation MCD should consider a hedging strategy ahead of earnings next week.

He would hedge a long stock position in McDonald's by placing a collar around the stock. With a collar strategy he is sacrificing some upside to get downside protection. Specifically, he wants to sell the January 120 call for $1.45 and buy the January 105 put for $1.30.

The structure allows him to generate a credit of $0.15 and it offers additional protection below $105. If the stock trades above $120 at the January expiration, his selling price would be $120.15, which is 5.3 percent above current market price.