Quick Income Selling Options on Papa John’s

Different cities and states are handling the COVID-19 outbreak in different ways, but even in San Francisco and Maryland, which have strict “shelter-in-place” and “stay-at-home” orders respectively, restaurants are still permitted to be open for delivery and takeout.

Papa John’s International, Inc. (NASDAQ:PZZA) is well positioned to outperform in this situation.

I want to be clear. PZZA may benefit from people being confined to their homes, but the stock could still suffer. Restaurants have lost business because of this, and while PZZA takes advantage of delivery, it does have physical locations.

Still, I think it can weather the storm better than most stocks.

PZZA’s Hiring Boom

Last week, PZZA announced it was hiring 20,000 new workers to help with safe, no-contact food delivery during the pandemic.

The company already has a robust lineup of delivery options. In addition to enabling ordering from its own site, PZZA allows customers to order through Door Dash, UBEREats, Postmates, Apple TV and Facebook Instant Ordering.

PZZA’s product has never been more available, and its services have never been more needed. The company’s stock should be able to avoid another drop like the one in mid-March.

Why Bet on PZZA’s Price Holding?

As you can see in the chart below, PZZA had a recent intraday low below $30. But things have changed since the initial panic about the pandemic began. The stock has jumped back above old support in the $41 range. I expect it to remain well above its lows.

Daily Chart of Papa John’s International, Inc. (PZZA) — Chart Source: TradingView

At the beginning of this pandemic, we weren’t sure what federal guidance would look like, and the different states hadn’t made decisions about how social distancing practices should be implemented.

Now, we know a few things: restaurants are still open, ordering from restaurants is safe and permitted in many of the states that are practicing strict social distancing and PZZA is setting itself up to succeed in this environment.

As the market jumps and drops in this volatile time, PZZA will likely have good and bad days. But I think the fundamentals look strong enough for a far out-of-the-money put write trade.

I am setting the strike price above PZZA’s recent intraday low, but below its closing low. As with many other trades during this volatile time, I am not setting an expiration too far in the future.

Sell to open the PZZA April 17th $32.50 put at about $0.50.

Note: Be sure you are opening the monthly PZZA options that expire on Friday, April 17, 2020.

This is a high-risk trade, so take a small position.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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