Getting Hungry On Chipotle

Jun.29.12 | About: Chipotle Mexican (CMG)

Strategic Mindset: Market Neutral with possibilities of Surges in Volatility and a flat to upward bias for CMG

Target: CMG trading @ $378.40

Commit Criteria: CMG has recently dropped considerably, adding to its IV. CMG Implied Volatility is overpriced relative to its forecast volatility of 6.55% over the trade period. We are looking for possible price movement but for it to stay above $350.00 until the exit of this trade.

Note - We will be closing this trade down before the expiration date due to an earnings announcement from CMG on July 19th. Our goal is to capture 80% or better of the max profit.

Click to enlarge

Tactic: Opening 8 CMG July 2012 Bull Put Spread (strikes [345/350]) for a $0.80 credit

Note - the Call Strikes on the analysis spreadsheet are only placeholders so the analysis work. They are not part of this trade.

Tactical Employment of Iron Condor:

- Selling to Open 8 CMG Jul 2012 $350.00 Puts

- Buying to Open 8 CMG Jul 2012 $345.00 Puts

- Net Credit: $80.00 per Bull Put Spread for a total of $640.00

- Max Gain: $640.00 [Target Profit $512]

- Max Risk: -$420.00 per Bull Put Spread for a total risk of -$3360.00

Mid-Course Guidance:

We will be watching for a price movement near the short strikes. As the short strikes are threatened we will adjust as necessary.

Profitability Target & Exit Tactic:

Due to an earnings announcement on July 19th I expect to close this trade before expiration. Our goal is to capture roughly 80% of the Max profit of this trade ($512.00).

Disclosure: I am long CMG.

Additional disclosure: We are looking to enter this position in our Advanced Model Portfolio at Top Gun Options