Buying CMG at a Discount? You Are Getting Paid to Do It
At about $32.5 a share, Chipotle Mexican Grill (CMG) is trading about 44% below its 52W high.
Do you think CMG stock is a good long-term bet at current levels? What about at a 30% discount at about $22.5 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
9.4% annualized yield at 30% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 3/19/2027, with a strike price of $22.5
- Collect roughly $120 in premium per contract (each contract represents 100 shares)
- That’s about 5.4% annualized yield on the $2,250 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 9.4%
- And you give yourself a chance to buy CMG stock at deep discounted price of $22.5
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
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Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| CMG stays above $22.5 | You keep the full $120 premium – 5.3% extra income over the next 359 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| CMG closes below $22.5 | You’ll be obligated to buy 100 shares at $22.5. But thanks to $120 premium, your effective cost basis is just $21.3 per share – a roughly 34% discount from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
Check out Buy or Sell CMG Stock and Chipotle Mexican Grill Investment Highlights
If you are not comfortable with options or stock-specific trades, Portfolios are the way to go as they can protect and grow wealth even better.
Portfolios Over Individual Stock Picks
Single stocks swing wildly but staying invested matters. A well built portfolio helps you stay invested, captures upside and softens the blows from individual stocks.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? HQ Portfolio has posted more than 105% in cumulative return since inception, with less risk versus the benchmark index, as evident in HQ Portfolio performance metrics.