Is It Time to Give Chipotle Stock a Chance?

It's no secret restaurant stock Chipotle Mexican Grill, Inc. (NYSE:CMG) has been the target of much bearish attention over the past year or so, as a series of foodborne illness concerns sent the shares spiraling from their mid-2015 highs to three-year lows last October. Since then, the shares have begun to flex a little muscle, adding back nearly 15% from their bottom, last seen trading at $404.90. But while CMG stock hasn't quite proven it has the strength to keep rallying over the long term, the shares recently flashed a couple of bullish short-term signals.

To begin with, CMG earlier this week retook its 50-day moving average -- one of the strongest "buy" signs for stocks over the past year, according to Schaeffer's Senior Quantitative Analyst Rocky White. Plus, a pullback last Friday to the 40-day moving average could indicate gains in the coming weeks. The stock has retreated to this trendline five times in the past three years, with every one of these instances preceding a positive 21-day return, with an average one-month gain of 5.5%.

Also setting up the stock for potential gains is a heavy load of short interest that has yet to unwind. While these bearish bets dropped by roughly 23% over the last four months, the 4.6 million shares still shorted represent 18% of CMG's total float, or seven times the stock's average daily trading volume.

Action in the options pits has been relatively optimistic of late, per CMG's 50-day call/put volume ratio of 1.24 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- a reading in the top quartile of its annual range. But it's possible some of these call buyers were, in fact, short sellers looking for a hedge.

Whatever the motive, it's an unusually attractive time to buy premium on CMG stock options. The equity's Schaeffer's Volatility Index (SVI) is seated just 2 percentage points from an annual low, at 20%, while its 30-day at-the-money implied volatility of 20.5% ranks lower than 99% of the past years reading. Together these figures strongly hint at historically low volatility expectations being priced into Chipotle Mexican Grill, Inc.'s (NYSE:CMG) short-term options.