This consumer stock's comeback is failing. How to trade it

Chipotle Mexican Grill (CMG) has shown significant resilience in maintaining price increases during the past few years of inflation. However, as the labor market cools, consumers become more

selective with their spending and rising food costs are increasing difficulty passing onto customers. We'll describe a spread bet that pays off if Chipotle shares continue to struggle.

CMG has managed to maintain an above-average valuation and is becoming increasingly difficult to justify as margins come under pressure. The risk/reward favors adding some bearish exposure

at these levels on CMG. From a technical perspective, CMG has broken below its 200-day moving average at $54.50, which is a key technical support level. It recently rallied back to its

previous $56 support, which now acts as resistance but failed to break through, signaling that sellers are in control. With momentum turning negative on Tuesday, the stock is now targeting

support at $48, with the possibility of hitting $46 should broader market weakness continue. CMG is trading at 43 times forward earnings, nearly double the industry average of 23 times,

highlighting its premium valuation in the market. While its expected EPS growth of 18% and revenue growth of 14% are higher than industry averages, these figures are not stellar enough to

justify double the valuation of its peers, especially when its net margins of 13% are increasingly under pressure as rising costs of ingredients and labor continue to squeeze profitability.

The trade To gain this downside exposure I'm suggesting a put vertical spread with a CMG Oct 11, 2024 53/49 Put Vertical @ $1.12 per contract. This entails: Buying the Oct 11 $53 Puts @

$1.85 Selling the Oct 11 $49 Puts @ $0.73 This strategy offers a maximum reward of $288 per contract, yielding a potential return of 257% with a breakeven price of $51.88. if CMG is below

$49 at expiration. It risks a total of only $112 per contract if CMG is above $53 at expiration. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their

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