One Trader's Way To Play Earnings On Chipotle Mexican Grill

Trader Gary Kwapik suggested an options trade ahead of the earnings report for Chipotle Mexican Grill, Inc. CMG which will be released after the market close on Tuesday.

With high implied volatility (IV) in the front month option, according to Kwapik, “a trader could play an iron condor late in the day for the expected Volatility crush the next morning.”

“A 50 point move is expected according to the IV so a call and put spread setup just outside that range would be traded,” as recommended by Kwapik. “If stock stays in that range after the binary event of earning’s is announced, the trader can buy back the condor the next morning for a profit as the premiums will vanish.”

Kwapik added that the maximum loss can be calculated using the distance between the strikes, minus the premium collected.

Kwapik suggested that traders setup this posiiton “near the close to take advantage of any move in the stock during the day to get proper option strikes.”

Chipotle Mexican Grill, Inc. recently traded at $714.52, up 0.28 percent.