Option strategy of the day| Breakout in Bajaj Auto; use long call for upside

The technical indicators indicate a bullish up move is likely to continue, said Mantri.

Bajaj Auto shares been one of the major outperformers in recent weeks and has broken out on the daily charts.

According to Arun Kumar Mantri, Founder of Mantri Finmart, "The counter has been in momentum for the past few sessions and may outperform the overall markets and the sector in the coming 4-5 sessions."

"The technical indicators also suggest that a bullish up move is likely to continue. The support for the stock is around 8850, while resistance is at the 9450-9500 levels," he added. To capture the momentum, he suggests taking a naked call option strategy.

Strategy Recommended: Bajaj Auto Long Call trade

Position: BUY BAJAJ-AUTO JUNE 9300 CE
Entry: 280-290
Target: 440-490
Stop Loss: 210
Holding Period: 5-6 trading sessions

Technical View

Mantri notes that the technical indicators exhibit strong inherent strength on the daily charts, with a volatility burst likely in the coming sessions on the Bollinger Band. "The counter looks strong on the weekly time frame as well and is poised to decisively surpass the 9200 mark in the coming trading sessions. The recent price action shows high resilience in the counter, even in the weak market last week, and is now set to surpass all previous highs, potentially testing 9400-plus levels in the short term."

Derivative Setup

"Option chain analysis of the stock for the June series shows the counter standing at the second-highest OI strike price, which is 9000, and is most likely to witness short covering if there is a significant gap up in the price," said Mantri. "The recent price action is followed by good volumes even in the derivatives front, indicating that the underlying strength is expected to remain in the short-term trade. The counter has also added significant OI interest in the past few sessions, suggesting the up move is likely to continue in the near term, and the price is expected to test the 9400-9450 levels," he added.

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