Red-Hot Chipotle Stock Has Room to Run

Short-term CMG options are attractively priced at the moment

by Patrick Martin

Published on Feb 12, 2019 at 2:09 PM
Updated on Feb 12, 2019 at 4:33 PM

Chipotle Mexican Grill, Inc. (NYSE:CMG) has started the new year off scorching hot, adding nearly 40% already in 2019. Today, CMG snagged a new three-year high of $612.60 out of the gate, although it was last seen down 1.2% to trade at $596.37. If history is any guide, Chipotle options traders may want to set their sights on more record highs in the coming months.

Specifically, the stock's Schaeffer's Volatility Index (SVI) of 28% ranks in the 15th percentile of its annual range. This indicates short-term options are cheap, from a volatility perspective. What's more, per data from Schaeffer's Senior Quantitative Analyst Rocky White, the two other times CMG was trading within 2% of a new 52-week high while its SVI was ranked in the bottom 20th percentile of its annual range, the equity averaged a one-month gain of 4.9%, and was positive both times.

A similar jump from current levels would put the equity toward territory not seen since November 2015 . CMG has more than doubled in the last 12 months, and a pullback in late January found support at its 20-day moving average. The shares gapped higher from there thanks to the burrito chain's latest blowout earnings report.

Daily Stock Chart CMG

Analyst sentiment remains bearishly skewed. There are 28 brokerages in coverage of CMG, 16 of which rate it a "hold" or worse. And the security's consensus 12-month price target of $550.20 sits well below its current perch, implying a fresh round of upgrades and/or price-target hikes could help nudge the stock even higher. 

Short sellers continue to pile on. Short interest increased by 18.5% in the last two reporting periods to 2.41 million shares, the most since mid-August. This represents a healthy 9.5% of CMG's total available float, and nearly triple the average daily trading volume. Meanwhile, Chipotle's Schaeffer's Volatility Scorecard (SVS) of 89 indicates the stock has tended to make outsized moves over the last year, compared to what the options market had priced in.
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