Caution still warranted as we book a big win with Chipotle
Key points in this issue
- Despite the market’s improved mood over the last few trading days, we are not out of the proverbial woods just yet. As such, we are sticking with our current plan of sitting on the sidelines until calmer market waters emerge.
- We are booking another win with our Chipotle Mexican Grill (CMG) Jan 2018 450.00 calls (CMG190118C00450000) that closed last night at 34.76, up almost 73% from our 20.10 buy-in in mid-October.
Last night we closed the books on the month of October, and what a month it was for the stock market. In today’s short-term focused society some will focus on the rebound over the last few days in the major domestic stock market indices, but even those cannot hide the fact that October was one of the most challenging months for stocks in recent memory. All told, the Dow Jones Industrial Average fell 5.1% for the month, making it the best performer of the major market indices. By comparison, the S&P 500 fell 6.9% in October while the technology-heavy Nasdaq Composite Index dropped 9.2% and the small-cap focused Russell 2000 plummeted 10.9%. In short, the month of October wiped out most the market’s year to date gains.
As I write this, we are just over halfway through the September quarter earnings season, which means there are ample companies left to report and issue updated guidance. Candidly, those reports could push or pull the market either higher or continue the October pain. Some may be tempted to put on some short-the-market positions as we did in late September, which paid off handsomely for us, but that was when there was a clear risk to the downside. Today, that downside view is far less compelling. Don’t misunderstand, there are still ample risks in the market to be had as the current earnings season winds down. These include the mid-term elections; Italy’s next round of budget talks with Brussels; upcoming Trump-China trade talks, which have led to another round of tariff preparations; and Fed rate hikes vs. the slowing speed of the global economy.
Most of those factors will unfold over the coming weeks and then we’ll be in the thick of the holiday shopping period. As we navigate these must-watch events, I’ll be watching option plays in companies like Amazon (AMZN) and United Parcel Service that are riding our Digital Lifestyle theme in the upcoming holiday shopping season.
Exiting our Chipotle calls with a hefty win
Last week I cautioned patience with our Chipotle Mexican Grill (CMG) January 2018 450 calls (CMG190118C00450000) and that coupled with the market rebound these last few days drove those calls higher. With last night’s close, the underlying CMG shares hit 460.33, well above our 450.00 strike price and that share price rebound led our CMG calls to close at 34.76 – up just shy of 73%. Not bad for a position that was added just two weeks ago.
Given my comments above, I’m taking the quick win on this trade and putting the returned capital and profits into the war chest as we wait for a calmer market to emerge.
- We are booking another win with our Chipotle Mexican Grill (CMG) Jan 2018 450.00 calls (CMG190118C00450000) that closed last night at 34.76, up almost 73% from our 20.10 buy-in in mid-October.
