Chipotle Mexican Grill, Inc.: Propel to Profits from CMG’s Bottom!

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Despite a less-than-hot earnings report from Chipotle Mexican Grill, Inc. (CMG), shares of CMG are looking technically fresh. For bullish investors willing to nibble, a slightly out-of-the-money long butterfly off Chipotle’s options menu looks very tasty. Let me explain.

cmg Chipotle Mexican Grill (NYSE: CMG)

Chipotle recently announced quarterly headline numbers worthy of giving CMG investors a bout of indigestion.

The fast-fresh food operator lost 88 cents a share, its first ever earnings result that failed to deliver a healthy profit for CMG shareholders.

What’s more, the loss occurred on a massive revenue decline punctuated by a near 30% drop in same-store-sales.

Since reporting — and following a brief one-day stab at a double-bottom test — shares of CMG have rallied about 8% and counter to the broader market’s own price dip. So, what’s going on?

First, while CMG’s earnings report was far from appetizing, it did beat Street views. Those results were also tied to a one-time occurrence of E.coli and Norovirus, and not a situation likely to be repeated.

Second, and if history for this sort of event runs its course, with Chipotle having shed 47% over several months following a spectacular multi-year bull run, it’s even harder to blame forward-looking and optimistic investors for “buying the news” in CMG.

CMG Stock Weekly Chart

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Source: Charts by TradingView

With Chipotle’s initial earnings reaction and subsequent reversal higher, CMG has established a higher-low, double-bottom pattern.

The bullish formation in CMG has the support of a long-standing uptrend line from 2009, as well as a 50% retracement from the financial crisis low. In conjunction with a bullish stochastic crossover, it’s our opinion CMG has enough constructive technical support to position for a bit of calculated upside.

Chipotle Stock Bullish Butterfly Strategy

Reviewing CMG’s options, one spread playing CMG’s technical bottom, but not requiring a heaping side dish of bull to profit, is a long June $460/$475/$490 call butterfly.

Priced for a debit of $2.25, this CMG spread maximizes its profit potential of $12.75 at $475 for a return of 566%.

To generate the max return, Chipotle shares need to rally an additional 5.5% into expiration one month out. That’s certainly possible for a stock like CMG, which has been battered and is now showing signs of life.

More to the point, or beyond this single price point, with an expiration profit zone from $462.25 to $487.75, this bullishly positioned CMG butterfly makes for a satisfying investment.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/cmg-chipotle-mexican-grill-stock-options/.

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