Key insights
- The author outlines a strategy for selling cash-secured puts on high-quality businesses like Chipotle (CMG) to acquire shares at a lower price while earning premium. The strategy involves selecting strikes 10-20% below the current price with a 3-month expiry, or using LEAP options for longer-term decay. CMG is presented as an example, trading at a reasonable forward P/E with growth prospects, and showing technical support around $30. The approach emphasizes only using this method for companies intended for long-term ownership and when valuation or technicals are favorable.
LEAP ITM 17th June 2027 Put options on $CMG are looking good. At $32.50 with a $5.30 premium for an 18.7% annualized.
Chipotle remains a great business with a long growth runway. Current forward P/E at 26x with future growth prospects of 15% for the upcoming years. If inflation persist this could keep sideways for a while.
Here's the strategy:
- When you found a business around fair value and you want to buy it cheaper. Go 10% - 20% under their current share price and take around 3 months in time decay. * Or, go for a LEAP which is around 12 months in time decay and take the slight ITM strike price for a better premium.
Only do this with businesses you’re intended to own and that are of high quality. Always take into consideration they are either:
- Fairly or undervalued * Or, technical analysis supports it.
$CMG is currently a great example. They are around fair valuation and support is touched 3 times at or around $30.
Waiting for a stock to buy at an even cheaper price and getting paid for it… You’ve got to love it!