[Options Premium] Burrito Run

Sean McLaughlin
July 19, 2019

Remember when Outrage Twitter was running wild with conspiracy theories about Chipotle poisoning its customers and the business was doomed? That was fun. You know who had more fun? Long term investors who turned off the "news" and stayed the course.

Earnings are coming up that may serve as a catalyst to launch the next leg higher in shares of $CMG.

There is potential for a 10-to-1 payout if we nail it and $CMG has a monster gap along the way to get us to and through our price target. But our aims are a bit more modest. We're simply looking to capture some of the barbacoa in the middle.

Here's the chart JC shared in the most recent All Star Chart Monthly Conference Call:

This weekly chart, when you widen the lens, makes it pretty clear that the 1060 level is not only attainable, but likely to be achieved if $CMG succeeds in breaking out from current levels.

That is a lot to play for.

Here's the Play:

We're buying a $CMG January 900/1060 Bull Call Spread for approximately $16.00. This means we'll be long the Jan 900 calls and short the 1060 calls. The most we can lose is the debit we paid to enter.

$650 is our line in the sand. If $CMG breaks below 650, we're going to close the trade down and re-evaluate from the sidelines. I'm not interested in taking the full loss on the spread if I can avoid it.

While it would be nice to hold this spread all the way to the 1060 price target, getting there by January expiration might be an aggressive timeframe. As long as $CMG can threaten to make a run for the target, we should have ample opportunity to profit. The most this spread could be worth is $160 (1060 short strike minus 900 long strike), but my hunger will be satiated when I can sell the spread for $50.00 and that's my goal. That would be a more than 2-to-1 return on my risk taken. Muchos Gracias.

If you have any questions, or simply want to grab a burrito with me (I'm always game for a Chipotle Burrito), send an email here.

~ @chicagosean

 

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