Squeeze Chipotle Mexican Grill, Inc. (CMG) Stock for Income Now

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CMG stock - Squeeze Chipotle Mexican Grill, Inc. (CMG) Stock for Income Now

Chipotle Mexican Grill, Inc. (NYSE:CMG) is rallying on its first-quarter earnings report, but it’s still far away from all-time highs. Fundamental investors lost money trying to catch CMG stock as a falling knife a few times, so they gave up on it for a while. They’ve only started dipping their toe in the water on the long side again.

Go Long Chipotle Mexican Grill, Inc. (CMG) Stock With Confidence

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But we continued profiting from Chipotle stock using options, whether it was to trade the ranges for free money, or create income from long trade not once but twice — and as recently as a week ago.

So what now after this stellar earnings report?

Fundamentally, the consensus from earnings is that Chipotle’s comparable-store sales were impressive and that company could be indeed back on track. For me, I just can’t call Chipotle cheap considering it still sells at 580 times earnings.

I’m not calling it a short here; in fact, just the opposite. There are too few optimistic analyst ratings, so we can expect several upgrades to CMG stock soon.

Therein lies our opportunity.

CMG stock chart view 1
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Technically, I don’t like to chase stocks in a mega-rally. As a conservative trader, I can’t justify risking almost $500 per share at face value and without any room for error.

But that doesn’t mean that I sit this one out and miss the opportunity.

The Trade on CMG Stock

The bet: Sell the Dec $400 put for $13 per contract. This trade has an 80% theoretical chance of expiring for maximum gains. If Chipotle falls below my strike, I would break even at $387 per share.

Usually I like to sell opposing risk to balance my trade — a hedge of sorts. But in this case, I will delay entry in anticipation of the potential upgrade cycle that has been long overdue. The setup in CMG stock should resemble the following:

The hedge (optional): Sell the Dec $600 call and collect an additional $7 per contract thereby creating a bigger breakeven buffer.

Selling naked puts is daunting and dangerous, so to mitigate the risk, I can turn each leg into a sold spread and still yield almost 50% combined on money risked.

Learn options as easy as 1-2-3 in a personal 1on1 webinar here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/squeeze-chipotle-mexican-grill-inc-cmg-stock-for-income-now/.

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