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Saturday, December 2, 2023

Options Heat Up On Chipotle As Shares Cool After Earnings


Today’s tickers: CMG, N & SUN

CMG – Chipotle Mexican Grill, Inc. – Lower-than-expected second-quarter sales reported by the operator of fast-casual Mexican food restaurants on Thursday sent shares in Chipotle Mexican Grill down as much as 24% on Friday to $307.20 and sparked frenzied trading in the options. The high-flying stock had been up roughly 20% year-to-date as of the close of trading yesterday. Chipotle options saw both bullish and bearish trading this morning, with volume topping 105,000 contracts as of 11:35 a.m. ET versus the stock’s average daily options volume of 14,547 contracts. Traders positioning for shares to extend losses snapped up weekly puts, paying an average premium of $12.55 per contract for around 2,000 of the July 27 ’12 $315 strike contracts. Bearish activity spread to far out-of-the-money puts expiring in August, with upwards of 1,000 contracts in play at each of the Aug. $295 and $300 strikes. Meanwhile, traders with an appetite for a Chipotle rebound in the near future purchased upside calls. The Aug. $350, $355 and $360 call options each traded more than 1,100 times in the first couple of hours of the trading session, while the Aug. $420 strike call changed hands around 1,400 times. Traders that appear to have purchased most of these call options stand ready to profit in the event Chipotle’s stock reverses course ahead of expiration.

N – NetSuite, Inc. – The software company popped up on our ‘hot by options volume’ market scanner this morning due to heavier than usual activity in the August expiry puts. Shares in NetSuite are down 6.6% on the session to stand at $50.05 as of midday in New York. The San Mateo, California-based company is scheduled to report second-quarter earnings after the final bell next Thursday and it looks like some strategists are picking up puts in preparation. Options volume is heaviest at the Aug. $45 strike where upwards of 2,100 puts changed hands versus open interest of just 136 contracts. It looks like most of the options were purchased for an average premium of $1.30 per contract. Put buyers stand ready to profit at expiration next month should shares in NetSuite drop 13% to breach the effective breakeven price at $43.70.

SUN – Sunoco, Inc. – Shares in the petroleum refiner are roughly flat on the day, up just 0.04% at $48.16 as of 11:50 a.m. in New York. A sizable block of call options in play on Sunoco this morning appears to be a bet that shares in the name will rise in the next four weeks, perhaps in anticipation of, or following, the company’s second-quarter earnings report on August 2nd. The stock gained 15% in the first half of 2012. A block of 5,000 calls exchanged at the Aug. $49 strike, the single-largest transaction in SUN options so far today, were likely purchased this morning at a premium of $0.63 apiece. The call buyer profits at expiration next month as long as shares in the refiner rally 3.1% to top the effective breakeven price of $49.63.


Caitlin Duffy

Equity Options Analyst

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