This Options Expert Gives A Few Ways To Play Chipotle's Earnings

Chipotle Mexican Grill, Inc. (NYSE: CMG) is scheduled to announce its fourth quarter 2014 financial results on Tuesday after market close. Options expert Nicolas Chahine shared his thoughts with Benzinga.

Chahine said in an email “earnings are always a coin flip. Even if traders know exactly what the company will deliver, traders can never know the market reaction to those earnings regardless of how good or bad they were.”

He continued, “trading earnings should be in small size and lotto style (small cost with decent chance at making money). This can easily be done via the options markets. A small expense for a debit spread can yield a nice win. The options markets are expecting a +/- $48 move on CMG earnings this week.”

Related Link: What To Expect From Chipotle's Earnings In 6 Charts

Chahine provided a couple of ideas to participate with small money using the options markets:

“Bullish traders can do a debit call spread where they risk a small premium price to buy and if they guess correctly the reward can be handsome. Bearish traders can do the opposite and buy a debit put spread and risk a small premium to buy and if they guess correctly, the reward is good.”

What Would Chahine Do?

“I tend to go with the flow (unless I have an edge and I don't),” he said. “I flipped a coin and up I chose. I can do this week's debit call spread: at the money or close to it. My risk will be about 1.3ish in premium with a chance to about double my money. I can go cheaper and buy the spread higher (ex: .7 perhaps for 737.5/740) with a chance to about triple my money BUT I then need to guess the direction (UP) AND the distance (HOW MUCH UP) will it go. I prefer the more expensive approach. Max risk is the money I pay for the spread.”

How About A Bearish Trade?

Finally, Chahine provides a bearish trade example: “buying this week's 710/707.5 debit put spread for which I pay about 1.3. If I guess correctly and CMG sells off, then I stand to double my money. Max risk is the money I pay for the spread.”