Chipotle (CMG) Might Be a UFO!

These burritos are both delicious and suspicious, I think they might be a UFO! There's nothing like it on my home plan...I mean where I'm from...

Today I'll be looking at Chipotle. It might be a bit of a longer term play, but I'm hoping it will be good for a quick trade. But first...

What's the Word on the Street?

A lot happened today! In the morning, GDP (Gross Domestic Product) came back at 3% for the second quarter. It was expected to be 2.3%. Then the Administration announced 25% tariffs on India and then 50% tariffs on Brazil. There is apparently a framework in place for a trade deal with Pakistan and possibly one with South Korea soon.

But the biggest piece of news today was the FOMC announcement that there would be no interest rate cut today (that was expected). But later when Chairman Powell gave a press conference, he dashed investor hopes that there might not be a rate cut in September (which was expected). It doesn't mean that there necessarily won't be, but the probability has gone down.

There's still more happening this week, major tech earnings, the Fed's preferred inflation gauge (PCE) tomorrow, and the big July jobs report on Friday.

Chipotle (CMG)

What Is It?

Chipotle Mexican Grill, Inc. engages in the business of developing and operating restaurants that serve a relevant menu of burritos, burrito bowls, quesadillas, tacos, and salads made using fresh, high-quality ingredients. The company was founded by Steve Ells in 1993 and is headquartered in Newport Beach, CA. The listed name for CMG is Chipotle Mexican Grill, Inc.

Why Is It a Possible UFO?

Primarily its current share price relative to its fair value and what other option traders expect are the reasons CMG could be a UFO.

What About Recent News?

CMG has been selling off recently because of signs of slowing growth. Specifically same-store sales. This in particular spooks investors because it could mean that customers are growing tired of the brand and could result in weaker sales in the future.

What's the Current Price?

CMG has been hit hard this year. In the past month alone it's down ~24%. And since it released earnings last week, the stock has fallen ~16%. I like to trade stocks that I feel are being unfairly punished by investors, as they tend to overreact. However, it's worth noting that sometimes investors have a reason to be scared, like I mentioned in the previous section.

What's the Fair Value?

I’d first like to emphasize that fair value is subjective. Many analysts at many banks and institutions rate stocks differently and assign fair value in their own unique way. So, what I like to do is take all the recent fair values since the most recent earnings report and average them. In this case…

Since CMG's most recent earnings report on 07/23/2025, it has received 9 ratings and taking the average, the fair value might be somewhere around: $55.

4 ratings are a Buy, 4 is a Hold, and the Morningstar rating is unknown. The lowest price target is $46, while the highest is $60.

What Do Options Traders Think?

Calls are trading over equidistant Puts, which means traders think there is a chance to the upside. You can see because… forget about the green columns and focus on the red. Notice how on the right side for the $41 Put it says $0.48, it’s $0.75 for the equidistant Call at $46.

The premium (the credit you receive for executing the trade) is currently less for selling Puts, as opposed to selling Calls. Basically because of that, option traders expect the stock to go up, rather than down.

How About Volatility?

The IV rank (the purple line) for CMG (stock price in blue) is currently hovering around 12.29, which is pretty low (IV rank goes from 0-100). Earnings for CMG was last week, which usually results in volatility falling. This makes short strategies (which are what I prefer) less attractive.

What's the Trade?

My preferred trade is a variation of the wheel without the rolling, AKA cash-secured puts. I typically like to target stocks that offer a dividend and are below fair value. 

Why a dividend? If the trade results in assignment and I’m on the hook for X amount of shares, I can at least be satisfied knowing I picked a (hopefully under fair value) company that will pay me a small amount while I run the other side of the trade AKA covered calls.

It’s a fairly low-risk strategy (all options trading is risky!), that has a higher probability of success, but requires a higher amount of collateral. 

CMG does not offer a dividend, but that’s not a dealbreaker!

So if you saw the most recent image above, I already STO (sold to open) 4 contracts of the $41 put for the September 5th expiration. I like to have a DTE (Days To Expiration) that is around ~45 days.

When the trade reaches 50% profit I will buy it back. I don’t like to be greedy and go for more profit, because I would rather not waste my time being in a trade for too long.

What About Alternative Trade Ideas?

1. If the collateral requirement is too high, another idea is a put credit spread. You would sell a put at a strike below the current share price and then buy a put at a lower strike than the put you sold. By doing so, you will avoid the collateral requirement of a cash-secured put, but the credit received will be smaller. Also, if the trade goes sideways, you will not be assigned shares so no collecting dividends and running covered calls afterwards.
2. Just invest! 1 share or even fractional shares are a way to get a foothold in a stock that you think might increase in value.

Wait…Where Are the Candlesticks? And All the Other Indicators?

I know many traders love their candlesticks and a ton of indicators. I prefer simplicity. Candlesticks aren’t necessary unless you’re the kind of trader that wants to try and pick the perfect moment to execute a trade, and even then it’s not a sure thing. 

As for indicators, there are a ton. Some of them work sometimes. None are perfect. I don’t want to get bogged down with too many. You’ll drive yourself crazy looking at too many of them, so find a handful you like and stick with those.

Disclosures

• I currently have an open trade with CMG (as mentioned in this post).
• No trade is a sure thing. There is always risk involved. 
• This blog post is not meant to take the place of financial advice, but hopefully acts as a guide for learning or informational purposes.