Fast fresh food chain Chipotle Mexican Grill (CMG) saw shares slip last week as the company’s CEO was poached to run
Starbucks (SBUX). One trader is betting that Chipotle shares will continue to slide in the coming weeks.
That’s based on the September 27 $46 puts. With 39 days until expiration, 10,159 contracts traded compared to a prior open interest of 228, for a 45-fold rise in volume on the trade. The buyer of the puts paid $0.30 to make the bearish bet.
Chipotle shares recently traded for about $54, meaning shares would need to drop by about $8, or 15%, for the option to move in-the-money. Shares hit a 52-week high of $69.26 back in June, and have been trending lower since.
Even with the recent pullback, shares are up nearly 40% over the past year. And with CMG shares trading at 48 times
forward earnings, the stock looks a bit expensive, and certainly capable of pulling back further.
Action to take:
Interested investors should hold off for now, as they’ll likely get an opportunity to buy shares more cheaply in the months ahead.
For traders, the September 27 $46 puts play well to the current downtrend in shares. The low cost of the option could result in high double-digit returns or better depending on how much further shares decline.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
