(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Shares of Chipotle Mexican Grill, Inc. (CMG) rocketed higher last week after the company announced Brian Niccol would become the new CEO, replacing the former CEO and Founder Steve Ells. Brian Niccol previously served as the CEO of Yum! Brands, Inc. (YUM) Taco Bell division. Shares of the company jumped by over 20% following the news. But the good times might not last, at least not according to the options market which shows a significant amount of bets that shares of the fast-casual restaurant will decline by perhaps more than 20% by year-end. (For more, see also: Chipotle: Rise and Fall of a Wall Street Darling.)

Chipotle shares have been battered since October of 2015, falling by nearly 58%, while the S&P 500 shares have climbed by roughly 25%. Numerous food safety issues have plagued the company over the past few years, and that has resulted in declining sales and a stock price that has paid dearly. 

CMG Chart

CMG data by YCharts

Big Volatility

(Yahoo! Finance)

Options are pricing massive levels of volatility with the long straddle strategy suggesting shares of the company could rise or fall by roughly 25% by expiration on January 18, 2019. The cost to buy one put and call is approximately $79 and results in a trading range of roughly $232 to $389, a vast range. But the options chain also shows that the puts at the $300 strike price outnumber the calls, with roughly 1,000 puts of open interest to approximately 550 calls. 

Bearish Bets

But further down the options chain, one can see multiple bets placed, looking for the stock to fall, with nearly 1,000 contracts open at $290, and another 1,000 at the $260 strike price. The puts at the $260 strike price cost about $19, and that means the breakeven price on the puts is about $241, and shares of Chipotle would need to fall 21% from its current price around $305. (For more, see also: Chipotle Stock Falls to Key Support After Food Scare.)

Bulls in Hiding

The call side of the equation does not show nearly the same enthusiasm, with the most significant open positions for the calls at the $300 strike. The calls cost $46, and that means the price of the stock would only need to rise to $346 to break even, an increase of only 13%. 

With more bets being placed on the shares of Chipotle falling, it would suggest the recent good times for the stock are likely not to last. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance. 

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.