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3 Covered Calls to Hedge Risky Stocks

You can earn very big money with these covered calls, but beware, because these stocks are ripe for a fall

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Covered Calls: Chipotle Mexican Grill (CMG)

Covered Calls: Chipotle Mexican Grill (CMG)
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Chipotle Mexican Grill, Inc. (NYSE:CMG) is still struggling. Once the food-borne illness issue broke, CMG stock never was able to recover. Even though the issue itself was resolved, faith in the company was undermined. In the fast-casual restaurant business, it is too easy to lose business to another chain.

Still, some investors hold the stock and some see it a value play. To me, if you insist on holding it, then sell covered calls.

CMG stock closed Wednesday at $397, which is 20% off its 52-week high and almost 50% off its all-time high. The 15 Dec $400 covered calls are selling for $29. That means you would collect $2,900 right now, and give you a 7% downside hedge. That translates to a 7% return for a five-month holding period.

CMG’s 52-week low is $353, so you’d be hedging yourself almost all the way to that point.

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