Bet on Chipotle Stock to Stay Hot

The delay on Mexican tariffs sent CMG to new heights

Managing Editor
Jun 10, 2019 at 12:26 PM
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When President Donald Trump threatened to impose tariffs on Mexico imports last month, it sent Chipotle Mexican Grill, Inc. (NYSE:CMG) gapping lower. However, with the news over the weekend that those tariffs are now delayed, Chipotle stock is up 2.1% to trade at $726.17, and earlier nabbed a three-year high of $730. Plus, a reliable signal is flashing again that indicates the burrito chain may climb into uncharted territory.

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. Per data from Schaeffer's Senior Quantitative Analyst Rocky White, the four other times since 2008 that 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 7.1%, and was positive every single time.

Chipotle stock's previous high came on May 20 at $727, an area that previously served as a stiff ceiling from the end of March to May. The shares gapped lower on the Mexico tariff news, but quickly bounced off their 100-day moving average. Year-to-date, CMG is up 68%. 

Daily Stock Chart CMG

For a stock that's done so well in 2019, analysts remain skeptical. Of the 26 covering the equity, 16 rate it a "hold" or worse. Plus, its consensus 12-month price target of $681.67 is a discount to its current perch. What this means is that the door is wide open for more upgrades and/or price-target hikes, which could vault CMG higher in the short term. 

Still, bears have picked up the pace in the options pits in recent weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), based on the 10-day put/call volume ratio of 0.95. While this still shows long calls with an edge on an absolute basis, the reading's annual percentile rank of 74% reveals put buying has been more popular than normal.

 

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