Option Bulls Bite on Chipotle Mexican Grill, Inc. (CMG) Bounce

Chipotle Mexican Grill, Inc. (NYSE:CMG) is on the mend after a presentation, attracting options traders

by Andrea Kramer

Published on Jan 13, 2016 at 3:22 PM
Updated on Jun 24, 2020 at 10:16 AM

The past few months have been rough for Chipotle Mexican Grill, Inc. (NYSE:CMG), to say the least. Plagued by E. coli and norovirus outbreaks -- which triggered a subpoena and reduced sales guidance -- the stock has been nosediving since October, culminating in a two-year low south of $400 yesterday. Today, however, CMG is on the mend amid encouraging words from management, and it looks like some options traders are buying the hype.

CMG has added 5.1% to sit at $424.96, on pace for its best session since July. Call volume is running at 1.3 times the average intraday rate, and it appears some buyers are picking up the January 2016 430-strike call.

By purchasing the calls at a volume-weighted average price (VWAP) of $5.43, the buyers are hoping CMG rallies atop $435.43 (strike plus VWAP) by Friday's close, when the options expire. Delta on the call has nearly quadrupled overnight, to 0.39 from 0.11 at yesterday's close, suggesting the calls have about a 39% chance of expiring in the money.

CMG's short-term options aren't cheap, though, considering volatility expectations are higher than normal. In fact, the security's Schaeffer's Volatility Index (SVI) of 49% stands higher than 97% of all other readings from the past year.

As alluded to earlier, speculators are cheering an executive presentation at the ICR Conference, in which the company said it's doing more testing of food and ingredients. Furthermore, CEO Steve Ells said he's "extremely confident" a food poisoning outbreak won't happen again, and expects 2016 to be an "investment year" as the chain tries to get back in the public's good graces.

On the charts, Chipotle Mexican Grill, Inc. (NYSE:CMG) still has a ways to go before recovering its recent losses, with the shares down more than 40% over the past three months. In fact, the equity's 14-day Relative Strength Index (RSI) is at a meager 15 -- well into oversold territory, suggesting today's bounce may have been in the cards. 

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