Update Oct 21st, 2011: CMG reported Q3 earnings last night that obviously beat expectations…..Here is a quick rundown fro Barclays Capital who seemed a bit downbeat about the results in a note to clients this morning:
Relative to historical outsized volatility in results, 3Q11 was uneventful. Top and bottom
line trends were ‘relatively’ in-line with expectations, with significant food inflation limiting
upside. And near term, both extreme comp and cost trends are likely to persist, with
double-digit comps battling 10%+ food inflation. Looking to ‘12, expectations may need
to be tempered, even after respectfully noting that low-single-digit comp guidance is very
conservative. We’re lowering ’12 estimates to reflect sustained inflation, only partially
offset by modest pricing. Importantly, such concerns are shorter-term in nature, and we
expect longer-term investors will be buyers on any pullback in future quarters, as the
structural growth story is intact, and we continue to believe Chipotle is the best growth
story in restaurants (and perhaps retail), with comp and unit growth still industry leading.
On valuation, currently ~40x forward versus the 16-43x 3-year range and 29x average
Well I am not a buyer with the stock up 3.5% in pre-market and actually expect the stock to give back a lot of the gains throughout the day and possibly close down on the day……..
The trade I put on yesterday was small and very low conviction as I stated in the post below, but at this point I want to roll this position out to November…..After the open I would look for Put Flies or Put Spreads in the next expiration that could benefit from a 10%-15% re-tracement back to about 280…..
The Oct Fly will likely be worthless very soon after the open and it will not be cost effective to trade out of it given the multi legs…..Thus the Hotel California trade as mentioned yesterday…..keep a close eye though, if the stock does reverse, you may be able to salvage something towards the end of the day…..a girl can wish can’t she??
Also yesterday’s trade in the name was a great example how sometimes it is best to sit on your hands and do nothing when your conviction level is low and you are just trading on emotion….
Original Post Oct 20th, 2011: CMG…Against My Better Judgement I Go Back to the Salsa Bar, Bought Oct Put Fly
CMG reports Q3 earnings tonight and the Implied move in the options market is about 7% vs the 4 qtr avg move of about 6%.
This stock is officially on my “Banned” list but many of you of asked how I would Play…..Obviously I will never buy this stock and would look for low premium ways to get short exposure……Here’s a possible trade[private]
I guess into tonight’s event if you had to play I would consider Put Butterflies….
I would look at $15 wide flies that could get the stock back to about 285, the 200 day moving average or down about 7% with the stock at $307.
Technically the chart looks toppy to me, even-though it appears to be making a decent base with a series of higher lows since late August….or it could be the making of a head and shoulders top….
[caption id=”attachment_5593″ align=”aligncenter” width=”300″ caption=”1 Yr
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TRADE I would Consider If I had to Play Earnings and Want to Be Short….
CMG $307 Buy Oct 300/285/270 Put Butter Fly for 2.50
Buy 1 Oct 300 Put for 6.60
Sell 2 Oct 285 Puts for total of 5.30 (2.65 each)
Buy 1 Oct 270 Put for 1.20
Break-Even On Oct Exp:
Profits Btwn 297.50 and 280 make up to 17.50
Losses btwn 297.50 and 300 and btwn 270 and 272.50 up to 2.50 and lose full 2.50 above 300 and below 270
***I Just Paid 2.50 for the is fly for a small position….But this is not a high conviction idea…..
As ALWAYS REMEMBER TO USE LIMITS IN MULTI LEG TRADES LIKE THIS, THE BID ASK IS VERY WIDE..
ALSO THIS TRADE IS OF THE HOTEL CALIFORNIA VARIETY, ONCE YOU ARE IN, YOU MAY NOT BE ABLE TO GET OUT WITH 1 DAY TO EXPIRATION, SO RISK WHAT YOU ARE WILLING TO LOSE.