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Why Buyers Are Gobbling Up GrubHub Inc Stock

Join them with a GRUB call spread with triple digit return potential

By Tyler Craig, Tales of a Technician

3 Reasons to Be Cautious About GRUB Stock

Source: Shutterstock

Robust earnings from Netflix, Inc. (NASDAQ:NFLX) are breathing new life into the Nasdaq Composite. And that’s benefiting momentum stocks like GrubHub Inc (NASDAQ:GRUB) which is up 5% in early morning trading. The launch couldn’t have come at a better time because GRUB stock was on the verge of breaching its 50-day moving average.

Let’s take a closer look at the recent action and see if there’s a trade to be had.

Why Buyers Are Gobbling Up GrubHub Inc Stock
Source: OptionsAnalytix

The weekly chart is a sight to behold. Four straight quarters of earnings gaps have propelled GRUB to the moon. The follow-through has been impressive creating increased momentum on each thrust. Although the stock was taken down a notch or two during the recent market turmoil, the damage is minimal.

In fact, the three-week retreat was needed to work-off the extreme overbought conditions. Perhaps most telling are the volume patterns. Instead of seeing a mass exodus during last month’s descent, we saw garden variety profit-taking with average volume.

Such benign conditions suggested this was a dip to be bought. And being bought, it is.

Source: OptionsAnalytix

The daily chart reveals how buyers congregated at the 50-day moving average to defend their turf. Support at $95 also proved impenetrable, showing the bulls’ resolve. Today’s rally is launching GrubHub stock above a short-term resistance level at $101. Continued strength should carry GRUB back to its all-time high near $112.

Upcoming earnings on May 1st is the wild card. GrubHub is undoubtedly a mover and a shaker in response to these events, so you better buckle up if you end up holding into the release.

A Mouth-Watering GRUB Trade

If you’re willing to bet the good times keep rolling, buy the June $105/$115 bull call spread for $3.65. Since your risk is limited to the initial cost, the loss will be minimal if the stock gaps lower on earnings. The potential reward is $6.35, which provides an attractive 174% return on investment if GrubHub soars on earnings and sits above $115 at expiration.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.

Article printed from InvestorPlace Media, https://investorplace.com/2018/04/buyers-gobbling-grubhub-inc-stock/.

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