Chipotle earnings analysis and trade ideas

• Posted by Greg Harmon
• on July 21st, 2015

This analysis and trade ideas were given to subscribers earlier today.

Well it will seem like a free burrito if you play this trade correctly and make some money. Chipotle, $CMG, moved higher in a stair step fashion from 500 in May 2014 to 725 in January. Quite a run. From there though it has moved lower in a broad channel mainly staying in the bottom of the channel. The move that began off the bottom of the channel at the beginning of July broke above the top but has yet to close the gap at 689. But it did not close the gap last time it popped either, stalling at the bottom of a consolidation range, like it is now.

Into earnings tonight the Bollinger Bands® are opening and price is riding the upper one higher. The MACD is rising as well. That is also like the last two times the price has failed. What is different is that the RSI is bullish and rising, this time where it had already turned lower at the previous spikes. That may be a positive that flips it this time, but the RSI is also in overbought territory. There is support lower at 665 and 658 before 648 and 637.50 followed by 600. There is resistance higher at 688 and 700 followed by 725.

The reaction to the last 6 earnings reports has been a move of about 8.50% on average or $57.50 making for an expected range of 617.50 to 733. The at-the money July 24 Expiry Straddles suggest a similar $54.50 move by Expiry with Implied Volatility at 104% above the August at 38%. Short interest is moderate at 3.5%. Open interest favors the the downside at the 650 Strike with some sizable buying at the 700 Strike above today as well on the Call side.

Chipotle, $CMG

Trade Idea 1: Buy the July 24 Expiry 680/712.5 1×2 Call Spread for free

Trade Idea 2: Buy the July 24 Expiry 680/712.5/730 Broken Wing Call Butterfly for $8.00.

Trade Idea 3: Buy the July 24 Expiry 675/645 1×2 Put Spread for free.

Trade Idea 4: Buy the July 24 Expiry 675/645/625 Broken Wing Put Butterfly for $8.00.

Trade Idea 5: Sell the July 24 Expiry 600/750 Strangle for an $8.00 credit.

#1 and #2 look for a upside move but not above 712.50 this week, with #1 using margin. #1 is profitable from 680 until 745, and #2 anywhere over 688. The maximum profit for both is at 712.50. These should be hedged as stock moves over 712.50. #3 and #4 look for a move lower but not below 645 this week. #3 uses margin. #3 is profitable from 675 to 615 and #4 anywhere under 667. The maximum profit for both is at 645. These should be hedged as price moves below 645. #5 is profitable on a close Friday between 592 and 758. I like #5 or a combination of #1 and #3.

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