Key Takeaways
- New options contracts for Chipotle Mexican Grill (CMG) are available for December 5th expiration, including a $38.00 strike put and a $45.00 strike call.
- The $38.00 put offers a potential cost basis reduction for CMG shares, with an estimated 73% chance of expiring worthless.
- The $45.00 call can be used for a covered call strategy, potentially yielding 11.53% if assigned, and has a 66% estimated chance of expiring worthless.
- Current implied volatility for these options is around 47-48%, higher than CMG’s trailing twelve-month volatility of 35%.
Chipotle’s December 5th Options: Strategic Opportunities
Investors in Chipotle Mexican Grill Inc. (CMG) can now explore new options contracts with an expiration date of December 5th. A review of CMG’s options chain highlights specific put and call contracts that may present strategic advantages.
Exploring Put Option Strategies for CMG
A notable put option contract with a $38.00 strike price is currently being bid at $1.12. For those intending to purchase CMG shares, selling this put could serve as an alternative to buying the stock directly at its approximate current trading price of $41.27. By selling the put, an investor agrees to buy the stock at $38.00, while simultaneously receiving a $1.12 premium upfront.
💡 This premium effectively lowers the potential cost basis for the shares to $36.88, prior to accounting for any brokerage fees. The $38.00 strike price represents a discount of approximately 8% from the current stock price. Based on current analytical data, this out-of-the-money position suggests a 73% estimated probability of the put contract expiring without value.
If the option expires worthless, the collected premium alone would represent a 2.95% return on the required cash commitment. This translates to an annualized yield of 24.99%, a strategy commonly referred to as YieldBoost.
Evaluating Covered Call Opportunities
On the call option side, a contract with a $45.00 strike price is currently available at a bid of $1.03. This presents a potential covered call strategy for investors who already own CMG shares, bought around the $41.27 mark. Selling this call option obligates the investor to sell their shares at $45.00 if the stock’s price surpasses this level by the December 5th expiration.
📊 The premium received from selling the call would enhance the overall return on the position. If the shares are assigned, the combined value of the stock purchase and the call premium could result in a total return of approximately 11.53% by the expiration date, not including any dividends. However, this strategy imposes a cap on potential gains if CMG stock experiences substantial price increases beyond the $45.00 strike.
A thorough review of CMG’s historical trading performance and its fundamental business outlook is essential before implementing such strategies. The $45.00 strike is approximately 9% above the current trading price, positioning it as an out-of-the-money option.
📍 Current data indicates a 66% likelihood that this covered call contract will expire worthless. In such a scenario, the investor would retain ownership of their CMG shares and keep the $1.03 premium. This premium would add a 2.50% uplift to the investor’s return, equating to an annualized yield of 21.16%, another application of the YieldBoost approach.
Volatility and Market Context
The implied volatility for the discussed put option contract stands at 48%, while the call contract shows an implied volatility of 47%. These figures are notable when compared to Chipotle Mexican Grill Inc.’s actual trailing twelve-month volatility, which has been calculated at 35% over the last 250 trading days at the current stock price of $41.27.
Additional resources and information regarding put and call option contracts can be found at StockOptionsChannel.com.
Considerations for Options Traders
When evaluating options strategies for Chipotle Mexican Grill Inc. (CMG), it’s crucial to balance the potential for income generation with the projected price action of the underlying stock. The options available for the December 5th expiration present distinct risk-reward profiles, catering to investors looking to potentially acquire shares at a reduced cost or enhance returns on existing holdings.
The presented put and call options offer varied avenues for investors to manage their portfolios or generate additional yield. Key elements for informed decision-making in the options market include a detailed analysis of strike prices relative to current market values and probability assessments for contract expiration outcomes.