The past few months have been tough for many stocks. Even with markets near all-time highs, a number of individual sectors and companies have been hit hard. One company sliding in recent weeks has been Chipotle Mexican Grill (CMG).
Shares are now back to six-month lows, and have now underperformed the S&P 500 over the past year. But shares have recently gotten into oversold territory, and look set to make a move higher.
Analysts are starting to notice the pattern in shares too, and are also looking to see periodic dips in shares as buying opportunities. With earnings and revenue up double-digits over the past year, and with the expansion of offerings such as drive-thru options at locations, it’s possible sales could pick up at the company.
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Action to take: Based on how shares got oversold and prior moves higher, shares are likely to move from the mid-$1,300 range to the low $1,500 range or higher in the span of the next few weeks. That’s likely a 10-15 percent move higher.
While investors can simply buy shares and look for that kind of move in a few weeks, this is the kind of setup that’s perfect for a call option trade.
The September $1,540 calls, last carrying a bid/ask spread of about $29.00, are pricey, but capable of a big move higher on a quick jump in shares in the coming weeks. The option also has plenty of time before expiration, allowing a trader to get out with a minimum of time decay.
Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.