I’ve been fielding a lot of questions on Chipotle Mexican Grill (CMG, $85.07, down $1.03) lately and I thought I would provide an update on what has happened since my last post on the company a couple of weeks ago. Restaurant stocks have taken a beating lately and in that time frame Chipotle has quickly fallen from $95 to $85. That is a small drop if you consider the stock has a 52-week high of $155.

One of the major uncertainties hurting Chipotle and Restaurant stocks in general is the effect of higher food costs. We have all heard about the supposed “rice shortage” and other commodities like corn and meat and veggies could continue higher for the foreseeable future. All of this will no doubt weigh on margins and eateries may have to increase menu prices just to keep up.

In April, when Chipotle was at $110 I talked about how active the May 105 puts were and that the bears could be ready to come out of hibernation. Those same May put options ended up going from $4.50 to over $9.50. I also said it appeared that traders were also rolling out their positions into the June 95 puts (CMGRS, $11.70, up $1.00) which were trading at $5 on 5/16. They have also more than doubled.

I point these things out because it is important to notice trends and what other factors can influence your holdings wheather you are bullish or bearish on a stock. When Chipotle fell below $90 I said momentum could take it to the lows $80’s and we got there Friday when the stock hit a low of $83 and change. Even if you don’t trade options and you were bullish on the stock, you would have saved yourself a lot of money by noticing Chipotle had broken key support levels.

The stock is just a trading day away from setting a 52-week low and usually in these circumstances new lows are made. If $78 is broken then the next level of support could be in the $60’s. Ouch! However, the stock has been hammered and the remaining Chipotle bulls might make a stand at current levels and save it from going below $80.

Rick Rouse