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4-13-2012 - mike sure loves June for all his trades. this clip has his Chipotle trade in at the end. CMG trade
Mike recommends the June 420/390 put spread:
Buy the June420 put for $15
Sell the June 390put sor $7.50
total debit of $750 for a one lot, max profit of $2250 if stock is at 390 or lower at June opex. mike states he wants to capture earnings and some "additional time". Scott mentions that CMG hit all time high at 440ish today. Often mentioned by mike is that you want to give yourself time for the spread to work for you and he does that by going out to june, the flip side of that is that if stock takes a hit on earnings and moves down, you will profit by not as much as you would think, nowhere near that $2250 since the spread is way out to Jun. If that is your thesis, an earnings miss, or a slow grind lower, sell in may go away, whatever, you have keep that in mind when going to june on this.
If your thesis is that stock will drop because of earnings, then i would look to put on something else. something shorter dated, probably april opex, something lower premium than that $750. My first thought would be to look at a April/May put calender. April options are pricing in about at $22 move, so using that i would look at the 415 level.. April IV is only in low 50s as of right now, likely rise into earnings..so that front month premium is not that elevated vs May...making this calender about at $5 debit and only a 2-1 payout ratio at April opex...too high of a debit for a onelot, and too low of a payout ratio.
my bearish thesis is that if it sells off on earnings that it will do so down to the 50day which is at 400, so a low premium trade would be a Apr 390/400/410 put butterfly.. bid/ask after hours is .10/.85 so i would look to get a .50 fill... max risk is $50 per lot with a 19-1 payout with a 400 pin... not really reasonable but if it sells off hard, will get an easy 2x-5x return the next morning... again my thesis differs than mikes, where i am just looking at a hard selloff because of some earnings metric disappointment..stairs up elevator down type selloff..secondly i dont want to commit $750 and i dont want to wait till june.
