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Thursday, March 28, 2024

Comment by phil

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  1. phil

    Covered calls/Kevin – Sure, for an IRA, this is a fantastic strategy.  Same one Craig talks about at our live conferences.  

    $7.50/Craigs – That's the net of the spread and WOW, we almost hit it.  You know, I would NOT stop out on such a quick move, to some extent, it seems someone got a hold of our call and purposely ran CMG down to our stop.  Keep in mind we bought the spread for what turned out to be $11.50 and now the $525s are $14 so we can roll them to June $500s (now $34) for +$12.50 and we're buying $25 of position and a month of time for $12.50 and, after the short $550s expire, we can sell June whatevers for that $12.50 we spent (currently the $545s).  Then, if CMG drops another $25 on us, we can finally sell some 2016 puts (assuming we still like them) for $12.50 and roll our calls down to the July/Aug $475s etc.  As long as you are comfortable with the sequence – there's no urgency to stop out.  

    Only news I see on CMG is the price hike – I guess people feel they can't make it stick but last time it went off without a hitch.   Good summary of the problem, which is affecting all restaurants, not just CMG:

    When Chipotle Mexican Grill Inc. (NYSE: CMG) reported first quarter earnings Thursday morning, the company specifically noted higher commodity costs for beef, avocados, and cheese as the drivers for a 1.5% increase in food costs to 34.5% of revenues. During the company’s conference call the CEO said that the restaurants would raise burrito prices to help it keep up with rising costs.

     

    Prices for a steak are up 25% Chipotle’s CEO Steve Ells said. Cheese prices are up 10% and who knows high avocado prices will go. There are estimates that as much as 30% of California’s avocado crop will be lost to the state’s continuing drought this year. Prices for other table vegetables like lettuce are also likely to be threatened.

    But even ground beef for those burritos will be more expensive because live cattle numbers have dropped and export demand for beef spiked. Export shipments are up 3% compared with just a week ago, when beef prices reached a 27-year high.

    ALSO READ: The 10 Fastest Rising Food Prices

    And while Chipotle did not mention pork prices, those too are rising fast as a deadly virus has killed millions of piglets in the past year, and prices for pork are 13% higher than they were a year ago and 53% higher than they were four years ago.

    Only chicken has not yet broken to new highs, but as consumers turn to poultry to replace beef and pork, demand will rise and so will prices. Analysts at Rabobank believe that chicken prices and margins will rise this spring and summer and that production needs to rise 8% to 9% to meet expected demand. That will not be easy to achieve.

    Chipotle expects burrito prices to rise in the mid-single digits and said that the price hikes will take effect over the next several months.



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