Chipotle Stock Sell-Off Attracts Bearish Options Traders

Put volume is accelerated on Chipotle today

Aug 23, 2017 at 2:22 PM
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Back in May, Chipotle Mexican Grill, Inc. (NYSE:CMG) rallied to an annual high of $499, but it's been nothing but downside since. Between a disappointing earnings release and more bad press, CMG shares have fallen to $300.41, and earlier hit a four-year low of $299.20. This puts the stock on pace for its third straight monthly loss, and options traders are betting on even lower lows in the near term. 

cmg stock

Chipotle put options are trading at an accelerated rate today, with volume running in the high 93rd annual percentile. Two of the most popular options are the October 285 and 300 puts, where it looks like traders may be opening long put spreads, betting on CMG shares falling down to the $285 level by the close on Friday, Oct. 20, when the contracts expire. The weekly 8/25 300- and 302.50-strike puts are also seeing heavy trading. 

This is a departure from what's normally seen in the equity's options pits. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day call/put volume ratio of 1.19. In other words, call buying has been more popular than put buying during the past 10 weeks. Plus, open interest for options expiring within three months is unusually call-skewed, according to the security's Schaeffer's put/call open interest ratio (SOIR) of 0.81 -- just 5 percentage points from a 12-month low. 

Elsewhere, short sellers again have their sights set on Chipotle. After weeks of declines, short interest on CMG rose by 30.2% during the two most recent periods. Short interest now represents more than 17% of the stock's float. 

As for analysts, the vast majority are taking a wait-and-see approach with the shares, with 17 of 27 rating them just a "hold." However, Chipotle has an average 12-month price target of $390.08 -- representing a nearly 30% premium to current levels. This leaves the door open for bearish analyst attention to come through, which could weigh on CMG stock. 

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