Chipotle Mexican Grill (NYSE: CMG) has had investors’ mouths watering for some time, and shares are already up 4.5% in 2015. The company has truly been one of Wall Street’s darlings, with shares seemingly moving parabolic higher since the 2006 IPO.
The upscale fast food chain is scheduled to report earnings after the close today, and expectations are high – consensus analyst estimates are calling for $3.79 EPS on $1.07 Billion in revenue. For the same quarter one year prior, Chipotle posted EPS of $2.53 on $844.15 million in revenue.
Historically, CMG shares have performed strongly on earnings, having rallied two of the past four quarters and six of the past. Shares also tend to move sharply on earnings announcements, with a mean move of 9.8% over the past eight quarters. This week’s CMG Feb Weekly 712.50 Straddle is priced around $50, implying a move of only about 7%.
When putting on earnings trades, I always want my price target to be aligned with the move the straddle is implying, while still achieving the most favorable risk:reward setup possible.
My Trade
- Buy the CMG Feb Weekly 750-760 Call Spread for $2.50
- Risk: $250 per 1 Lot
- Reward: $750 Per 1 Lot
- Break-even stock price (at expiration): $752.50
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