Chipotle Mexican Grill (CMG, $69.01, down $14.79) has dipped below $70 again after opening the trading session at $74.29. The stock traded to a high of $75.50 but the bears have been firmly in control since the opening bell. I mentioned the after-hours trading was a good indication that the stock would probably open around $75 which we got.

I went out on a limb with the August 70 puts (CMGTN, $4.70, up $3.30) because trading options around an earnings announcement is the riskiest way to lose all of the cash you put up for a trade. However, sometimes you get such a good feel for a company, how it trades, and how it reacts to earnings announcements that it just doesn’t matter.

Chipotle is a stock that I have followed since it become a public company. Google (GOOG, $488.16, down $1.06) is another company I have followed since its IPO. The point is I rode Chipotle on the way up when Wall Street was drooling over their earnings announcements and profiled many call options when the stock made its run to $155. Now, I’m simply playing Chipotle on the way down.

The puts were profiled at $1.60 in the blog so we basically have a 200% gain on our hands. The puts have hit a high of $5.80 for the day when the stock hit a low of $67.40. That is probably going to be the peak for the day but it’s hard to say with the Dow struggling going into the final two hours of trading. The Dow is down 212 points to 11,420 and appears to be headed even lower. Set stops at $4.25 or you can sell half today and let the rest ride on Friday. This was ony a one or two-day trade so the position should be closed before the weekend, regardless.

Rick Rouse
Rick@OptionsMentoring.com