Option strategy of the day| Breakout in Bajaj Finserv; Bull call spread recommended

Stock market trend

Bajaj Finserv Ltd shares have broken out of a symmetrical triangle pattern on the weekly chart and are now trading above their short- and long-term moving averages.

Sudeep Shah, Deputy Vice President and Head of Derivative and Technical Research at JM Financial, believes this breakout is confirmed by volumes above the 50-week average. "For the September expiry, a significant concentration of call open interest is evident at the 1,800 strikes," he noted.

To capitalize on the upward momentum, Shah recommends a Bull Call Spread strategy:

Recommended Spread:

Bajaj Finserv Spread Trade: (Bull Spread - 26th September Expiry)
Buy 1,760 CE at CMP 52
Sell 1,780 CE at CMP 44
Net Outflow: 8 points
Date of Initiation: 29th August
Date of Expiry: 26th September
Maximum Potential Risk: 8 points (Rs 4,000 per pair)
Maximum Potential Gain: 12 points (Rs 6,000)

Technical View

Shah highlights that the Nifty Financial Services index has been strongly outperforming the frontline indices over the past few trading sessions. "Currently, Bajaj Finserv is trading above its short- and long-term moving averages, which are in a rising trajectory and aligned in the desired sequence, indicating a strong trend. Notably, the weekly Relative Strength Index (RSI) has surged above the 60 mark for the first time in the calendar year 2024," he added.

"The daily and weekly Moving Average Convergence Divergence (MACD) indicators remain bullish, as both are above their signal lines and zero lines. The daily MACD histogram also suggests a pickup in upward momentum," Shah further stated.

Derivative Setup

Shah observes that the current derivative data aligns with the bullish chart structure. For the September expiry, there is significant call open interest at the 1,800 strike, while substantial put open interest is concentrated at the 1,700 strike. "Looking at the option chain, strikes from 1,820 to 1,600 are seeing put writing, while strikes from 1,760 to 1,920 are witnessing call buying. This indicates bullish momentum in the stock, with a likely test of the 1,840 level, followed by 1,900 in the short term," he said.

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