You know the deal with Chipotle folks. You know about the E.Coli. You know about the norovirus outbreaks. You know that white people across the United States have opted for other ‘gentrified’ fast casual options. You know that their 5 o’clock free crack giveaways failed to bring back jaded customers with their behinds still flaming from random bouts of diarrhea.
What you may not have known is that often times when a stock has been beaten down like Chipotle has and starts forming a very impressive floor, it could allude to the fact that all the bad news is priced in.
Watching the afterhours action last night was entertaining with the stock trading in a wild range and with spreads at times over $10. RA recent problem area for this name has been around $420, and we opened at $409 today and ramped quickly. Off the pullback we started buying the $440 Weekly Calls for next week under $2. Once the stock was able to hold $420 and make a real push over $425, it became abundantly clear that shorts would squeeze hard and new buyers would find their way into the stock. We didn’t know she’d move this much though and a continuation into next week is likely.
Obviously, there were numerous strikes and expirations you could have picked to play this move, but the idea came from the current bearish sentiment as well as a catalyst to shake those people out of that sentiment. Subsequently, you get an outsized, pure directional move as all market participants use the same orders. Shorts buying market to cover, and buyers going market to get in for a bounce.
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