×

Traders expect this hot stock to simmer down

Chipotle stock is sizzling.

Shares of the fast-food giant are up nearly 10 percent in the past month, and traders are expecting even bigger moves following the company's fiscal 2015 second quarter earnings report after Tuesday's closing bell.

"The options market is implying a $57 move [post-earnings] in either direction, which is about 8 percent," options expert and CNBC Contributor Dan Nathan said Monday on CNBC's "Fast Money."

According to Nathan, an 8 percent move is roughly in line with the four-quarter average, however, in the past three quarters, the move has resulted to the downside. "Over the last year investors have shot first and asked questions later, with the stock declining an average 7 percent the day after the last three quarter results," said Nathan, founder of RiskReversal.com.

Nathan noted that investors should be a "tad cautious" with Chipotle stock approaching the $700 level. "Chipotle shares are basically unchanged on the year, but it just bounced off of that $600. It rallied almost 13 percent in the last two weeks in almost a straight line," he said. "I think you should actually be a little cautious here, as a lot of the good news can already be priced in over the last two weeks."

Read MoreThis stock could see crazy moves on earnings: Trader

Indeed the stock has rallied even in the face of some negative calls. Just last week DoubleLine's Jeffrey Gundlach told CNBC that Chipotle was overvalued. And earlier this month Barron's published a piece suggesting the stock was "losing its spice" and said the restaurant could lost 15 to 20 percent of its value.

"The bear case revolves around rising food costs, increased competition and valuation," Nathan said.

Still, Wall Street continues to have a taste for the stock. Of the 31 analysts that cover Chipotle, the average price target is $728.75 with a rating of overweight, according to FactSet. The company is expected to report second quarter earnings of $4.43 Tuesday after the bell.

The stock was trading at $673.93 on Tuesday morning, down slightly.

Latest Video

Tutorials

Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Options Action Traders

From Our Sponsor

Options Action Newsletter:

Sign up to receive exclusive Options Action content. Each month you'll receive an exclusive message from host Melissa Lee and insight directly from one of the members of our Options Action panel. Keep your pulse on the market with the Options Action newsletter.

Please enter a valid email address
To learn more about how we use your information, please read our Privacy Policy.