Chipotle Earnings Trade Ideas
- Posted by Greg Harmon
- on October 18th, 2012
PENDING GREG QUOTE
Chipotle Mexican Grille, $CMG, has been bouncing on support of the 200% Fibonacci extension of the retracement of the move higher following the November 2008 low at 278.81. With a Relative Strength Index (RSI) that is bearish and a Moving Average Convergence Divergence (MACD) indicator that was improving but now turning back lower, it has a downward bias. Now through the Fibonacci Arc it may be freed up to move. There is support lower at 270 and 257 followed by 242,
Chipotle Mexican Grille, $CMG
224 and 214. Resistance higher at 303 is followed by 317 and 340. There is short interest near 10% that could give it a kick higher ion a good report. The reaction to the last 6 earnings reports has been a move of about 8.13% on average or $23.50 making for an expected range of 262 to 309. The at-the money October Straddles suggest a roughly $23.50 move by Expiry with Implied Volatility at 173% above the historical at 33% but and November at 49%.
Trade Idea 1: Buy the October26w 275 Put for $9.90.
Trade Idea 2: Buy the October26w 275/265 Put Spread for $3.60.
Trade Idea 3: Buy the October26w 275/265 Put Spread and sell the October26w 260/250 Put Spread for $2.30.
Trade Idea 4: Buy the October26w 275/265/255 put Butterfly for $2.60.
I like #3 best as it covers the expected range and makes money from 273 to 252, with a week to play out.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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