GrubHub Stock Could Reward Options Bulls – Schaeffers Research

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GrubHub Inc (NYSE:GRUB) stock has received a flurry of analyst attention today. While Wedbush downgraded the online restaurant delivery concern to “neutral” from “outperform,” the brokerage firm also upped its price target by $5 to $70. Two other firms chimed in with price-target hikes as well, including Jefferies (to $73) and Wells Fargo (to $68). It appears the hikes were not enough to offset the downgrade, as GRUB stock is down today 2% to trade at $71.49. Still, now could be an opportune time to purchase options to bet on GrubHub’s next leg higher.

GRUB shares have almost doubled year-over-year, and have outpaced the S&P 500 Index (SPX) by almost 38 percentage points in the past three months. Since a late October earnings-induced bull gap, the shares’ 20-day moving average has guided the stock higher, culminating in a record high of $74.75 on Dec. 20. Despite the stock’s struggles today, GRUB is throwing up an intriguing buy signal to short-term options traders right now.

The stock could be ready to hit even higher highs, if past is precedent. The equity’s Schaeffer’s Volatility Index (SVI) of 50% is lower than just 5% of all other readings from the past year, pointing to relatively attractive short-term option premiums amid muted volatility expectations.

In the five other times GrubHub stock has been trading near new highs while its SVI has been ranked in the bottom 10th percentile of its annual range, looking back to 2008, the shares averaged a one-month gain of 5%, according to data from Schaeffer’s Senior Quantitative Analyst Rocky White. Plus, the stock was positive a month later 80% of the time. A move of similar magnitude would vault GRUB stock above the $75 level, a new record high.

In the options pits, put buying has been quite popular. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows GRUB with a 10-day put/call volume ratio of 2.09. Not only does this show long puts outnumber calls by a 2-to-1 ratio, but the ratio ranks 6 percentage points from a 52-week high. If GRUB stock were to continue to climb, it could lead to an unwinding of these bearish bets.

A short squeeze could provide more fuel for GRUB, too. Although short interest fell 3% during the last reporting period, it still represents a whopping 30% of the stock’s total available float, and over 18 days’ worth of pent-up buying demand, at the security’s average pace of trading. A continued exodus of these shorts could also propel the shares higher.