CMG Chipotle Mexican Grill- a Tasty Trade?
Technical Trends of CMG Look Promising
Chipotle Mexican Grill is not only good eats, but is setting up for a nice trade. Despite a recent decline since June 16th, the 30 day trendline is still moving upwards. Last week the stock tested a low of $133.60 and $133.40 just six days apart, and has been holding it’s value since. In the past two days trading has been positive and todays closing of $139.50 is above the 7 day moving average.
But are the Fundamentals Still Strong?
CMG has been on my watchlist for quite sometime, and companies and markets change. It’s always a good idea to cross reference the industry group. I am a member of Investools and have been for several years. Checking the company’s information on Investools, I see that the industry group is strong with a 94% rating with industry money moving into the restraurant sector.
CMG as a company has also maintained strong financials which adds strength to the equity.
Cross checking with one other source, Investors Business Daily, we see a smart select rating of 99 and that CMG leads it’s industry group in its composite rating. (others that lead the group in order include MCG (McDonald’s), PEET (Peet’s Coffee), THI (Tim Horton, Inc) and NATH (Nathan’s Famous)) Each of these would deserve further research for short or long term trading, but none were previously on my watch list. In addition, in order to stay diversified I would not invest in more than one restaraunt group at this point in time.
So my fundamental and financial analysis is complete with the cross checking of both IBD and Investools. Either one of these subscription services can save you a ton of time in research, letting you make the decisions about technical analysis, timing and type of trade.
Managing Risk: Analyzing the Option trade
The Basics:
Current Equity Price: $139.57 (close on 7/8/10)
Recent Support: $133.50
Difference between Current and Support: $6
Target: ~ $10 gain in a 5-7 day period
Potential Options (> 30 days until expiration)
August 140 Call: $8.70 Delta .52 Risk $6*.52= $3.12 %age of account: 9.5%
August 145 Call: $6.30 Delta .43 Risk $6*.43= $2.58 %age of account: 8%
Analysis of Risk
The general rule of thumb is not to risk more than 1-2% of your account value on a single trade. This allows for many “losing” trades with limited loss of account value. Having a single “double” which isn’t uncommon in well chosen short term options trades will more than offset a number of small losing trades. However as a rule of thumb in trading account with less than $10,000, you’ll need to accept a higher amount of risk in order to trade even single options contracts. (an option contract is 100 options…the minimum you can purchase in a single transaction).
So while 8-10% is higher than I usually risk, I will keep this on my short list for purchase in the morning depending on how the first hour of trading is going.
Comments or questions? I’ll keep you posted how this one may workout.
Suzanne @ July 8, 2010