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Why Chipotle is Too Hot, Why One Trader Can't Stand Morgan Stanley

Citigroup’s earnings appear to have given a lift to the financials, but the real test will come later this week when Goldman Sachs and Morgan Stanley report results.

Shares of the former investment banks have been battered in the last year by a vicious cocktail of heavy regulation and declining volumes across a whole bunch of businesses. Throw in a sovereign debt crisis that simply won’t go away and you’d be hard pressed to find any investor eager to buy this group.

So, with a bearish view on both the name and sector, Dan Nathan of Riskreversal.com suggested buying the May 16/14/12 “Put Fly” for $0.23. It a trade that is most profitable if Morgan Stanleystock hits $14 by May expiration. It’s also a trade that has been put on at least 1000 times as of 3pm Monday. Trade and breakdown are below.

DAN’S MORGAN STANLEY TRADE - $17.50

BUY 1 MAY 16-STRIKE PUT FOR $0.45

SELL 2 MAY 14-STRIKE PUTS FOR TOTAL $0.26

BUY 1 MAY 12-STRIKE PUT FOR $0.04

HOW DAN'S TRADE MAKES MONEY

LOSSES ABOVE $15.77

PROFITS BETWEEN $15.77 - $14.00

PROFIT TRAIL OFF BETWEEN $14.00 - $12.23

LOSSES BETWEEN $12.23 - $12.00

LOSSES CAPPED AT $12.00

Our other trade involved a bearish view on momentum favorite Chipotle , which reports earnings on Thursday. Call it a coincidence, but Chipotle stock has been 90 percent correlated to Apple’sstock price over the last couple years. That’s one heck of a burrito stand, and if Apple’s price action today is any indication, (CMG) shares could give investors a great deal of indigestion. Both Khouw and Carter recommended a bearish trade on the burrito king, buying the June 420/390 put spread for $8.00. Trade and breakdown are below.

MIKE’S CHIPOTLE TRADE - $433

BUY THE JUNE 420-STRIKE PUT FOR $15.50

SELL THE JUNE 390-STRIKE PUT FOR $7.50

HOW MIKE’S CHIPOTLE TRADE MAKES MONEY

LOSSES ABOVE $413

PROFITS BETWEEN $413 - $390

PROFITS CAPPED AT $390

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Symbol
Price
 
Change
%Change
C
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CMG
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MS
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AAPL
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