As I am sitting here watching the reversal in NFLX, almost a 15% reversal from this morning’s all time highs, I can’t help but to look for a similar situation in a very overvalued stock, albeit not a web based one. CMG is a burrito company that has had fabulous growth and has executed very well in a difficult consumer environment. But come on people… this is a freaking burrito company trading at 5.25x sales and 52x earnings.
I want to make a near term bearish bet that a lot of the good news is in the stock, but I want to do with defined risk, and a stop on top of that.
TRADE: CMG ($514.50) Bought the Nov 515 Puts for 12.00
I will look to spread by selling lower strike put on a down move, or cut my losses if the stock is $530 or higher. Trade breaks even on Nov expiration at $503. This is a reversal play and it will be clear fairly quickly if that reversal is in the cards. If it doesn’t happen, I’ll close the trade for a small loss. If it does reverse there are several trade management options that we’ll explore.