I profiled Chipotle Mexican Grill’s (CMG, $95.47, down $3.22) earnings about three weeks ago after the company beat Wall Street’s expectations by four cents a share. However, the stock fell 10% that day and closed right around $100.

The breakdown was significant and technically speaking, the stock broke through its 20 and 50-day moving averages. Though moving averages aren’t a tell-all for making a trade, these breakdowns usually attract the attention of investors who are bearish.

The May 105 puts (CMGQA, $9.60, up $3.70) were profiled at $4.50 when I noticed the put option activity building going into Chipotle’s earnings announcement. Sure enough it was a good sign of things to come for the bears as the puts more than doubled by expiration.

Chipotle even said it was going to be tougher for them to hold gross profits at current levels due to the continuing rise in food costs. Although some stores have increased prices with the introduction of the company’s naturally raised beef, management does not plan on a company-wide price increase at this point. That’s great for us but without higher prices, gross margins will get squeezed.

If you take another look at Chipotle’s chart you will see $90 as a key support level. If the stock falls below this level, momentum could take it to the lows $80’s where the next level of support lies. Some options traders may be seeing the same thing and with the May options expiring today, they may be rolling their profits into the June 95 puts (CMGRS, $4.98, up $1.08).

Rick Rouse