Chipotle Mexican Grill, Inc. (CMG) is on the verge of breaking out to a new all-time high. The popular restaurant chain has delivered year after year of solid gains for shareholders, and it looks as if additional upside is imminent.
CMG stock scored a monster 4.3% gain in Monday’s trading session, making it a standout among virtually every other stock in my watchlist. After a long slumber, it appears CMG wants to resume its long-term uptrend with another advance. A deeper look at its price chart reveals a number of attractive developments. Here are the top three:
- CMG stock has done a commendable job in digesting the gains from prior years by forming a clean sideways base for the past six months. Like a tightly wrapped burrito, the stock has traded in a well-defined range and now looks poised to take out the pivotal $700 mark.
- CMG has performed admirably for the past week while the broader market stumbled. While the S&P 500 broke a number of short-term support levels, including its 50-day moving average, the drop in CMG was harmless. It remained above its 20-day moving average and formed a higher pivot low, showing a noticeable uptick in demand for the stock.
- The comparative relative strength in CMG staged a broke out of its own trading range and now sits at a three-month high.
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Traders salivating at the price action in CMG, but aghast at its $700 price tag, can use option contracts to trade the looming breakout on the cheap. Normally, long call options are the logical alternative to buying shares of an expensive stock, but quite honestly even the call options on CMG are pricey. To reduce the overall cost, try a call spread instead.
Purchase the Feb $700/$710 call spread for $5. The spread consists of buying the Feb $700 call and simultaneously selling the $710 call.
The risk is limited to the initial $5 and will be lost if CMG sits below $700 at expiration. The max reward is limited to the distance between strikes minus the net debit, or $5, and will be captured if CMG sits above $710 at expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
