The markets have somewhat recovered from yesterday’s selling pressure, with the benchmark Nifty 50 index closing the session 0.7% up at 19,517. Most sectors ended in the green zone but one stock that stood out from the F&O space is Jubilant Foodworks Limited (NS:JUBI).
It is a food service company with a market capitalization of INR 32,356 crore and operates the franchise of world-famous Domino’s Pizza, Dinkin Donuts, etc. Without a doubt, the stock trades at a high valuation, with a TTM P/E ratio of 120.12, however, it delivered a fresh breakout on the daily chart on Friday, making it a good candidate for a bullish move.
Image Description: Daily chart of Jubilant Foodworks with volume bars at the bottom
Image Source: Investing.com
On the last day of the week, the stock jumped 5.27% to INR 517.15 and sliced through its major resistance of INR 500. This level was quite a strong selling zone and was keeping the stock from rising since mid-June 2023. But now, as all the selling pressure has been absorbed by today’s strong demand, the stock might deliver investors a good return before the current monthly expiry.
The volume figure also jumped to 6.7 million on the NSE, which is the highest one-day volume in over 2 months. This heavy demand clearly shows buyers’ interest and therefore no short position should be kept open from here on.
Even with the most conservative estimate, the stock might touch the next hurdle of INR 540 for which traders can deploy simple bullish options strategies such as a bull call spread. The current 520 CE (ATM) is trading at around INR 15.6 while the 540 CE (OTM) is trading at INR 8.4.
In this strategy, traders long the ATM option and short the OTM one, which in this case will lead to a net premium of INR 7.2. As this is a debit spread, this premium paid will be the maximum loss in any case while the max profit will materialize at INR 540 (or above) which will be INR 12.8. This translates into a risk-to-reward ratio (R:R) of 1:1.7. Initiating this strategy on a retest of breakout to around INR 500 will further enhance the R:R ratio.
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