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Forget the Free Burrito, Get Free Money in Chipotle Mexican Grill, Inc. (CMG) Stock

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Chipotle Mexican Grill, Inc. (NYSE: CMG ) is one of those controversial stocks where I have better luck selling lotto tickets than trying to catch swing runs. Last year I wrote several times about how to create free income from CMG stock . The October trade yielded over 40% on money risked.

Free Range Profits From Chipotle Mexican Grill, Inc. (CMG) Stock

Source: Mike Mozart Via Flickr

The fundamentals still have not changed for CMG stock. It still has its fans and haters. Those two groups are the opportunity that I see in the Chipotle options market.

I have had success selling these perma-bulls and bears losing lotto tickets - meaning I sell risk against both extremes. Since the truth usually lies somewhere in between, the premium I collect from them expires worthless and for maximum gains.

Click to Enlarge Currently, I see technical things I like about CMG stock. I can argue that if it is able to add a few bucks from its current level, it could mount a challenge to $450 per share. But instead of betting on that fact, today I want to sell risk against a level low enough that it should hold through the summer season.

It is important to recognize that earnings are coming soon and those can be brutal in the short term.

It is even more important to remember that I only sell naked puts if I am willing and able to own the stock at the strike sold.

CMG Stock Trade Ideas

The Trade: Sell CMG Jun $315 put. This is a bullish trade for which I collect $3.20 per contract to open. This trade has a 90% theoretical chance of success with a 24% buffer from current price.

By selling CMG put, I commit to buying the stock at that price if Chipotle stock falls through it by June. If so then I would have bought the stock at a 25% discount from current levels and where CMG has had strong consolidation during 2011/2012. 23% sounds like a big enough buffer, but earnings reactions are unpredictable, so I have to be realistic in my expectations.

Still, selling naked puts is not suited for everyone. I can modify the trade to better fit more conservative risk profiles.

The Alternate: Sell CMG Jun $320/$315 credit put spread. This also is a bullish trade, but one that has a finite risk profile. I collect 50 cents per contract to open. This has a 23% buffer from current price. If successful, this trade yields 10% on money risked.

I need CMG stock to stay above my sold strikes to win on either of these trades.

I am not required to hold my option trades through their expiration dates. I can close any of them at any time for partial gains or losses.

Nicolas Chahine is the managing director ofSellSpreads.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.

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The post Forget the Free Burrito, Get Free Money in Chipotle Mexican Grill, Inc. (CMG) Stock appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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