Option strategy of the day| Consolidation breakout in Lupin, bull call spread recommended

Stock market trend

Lupin Ltd shares have recently given a consolidation breakout on a daily scale, moving higher with robust volume. The stock has strongly outperformed the frontline indices in the last few trading sessions.

"The collective data suggests a bullish sentiment in the stock. It is likely to test the level of 1990, followed by 1230 in the short term," said Sudeep Shah, DVP and Head of Technical and Derivative Research at SBI Securities.

Bull Spread Recommended by Shah:
LUPIN Spread Trade (Bull Spread - 29th August Expiry)

Buy 1920 CE at CMP: Rs 66
Sell 1940 CE at CMP: Rs 57
Net Outflow (Max Risk): 9 points
Date of Initiation: 1st August
Date of Expiry: 29th August
Maximum Potential Risk: 9 points (Rs 3,825 per pair)
Maximum Potential Gain: 11 points (Rs 4,675)Profitable Zone: Above 1929

Technical Setup

Shah highlights that the stock is trading at a 52-week high, with all moving averages and momentum-based indicators suggesting strong bullish momentum. "The daily RSI has been in a super bullish zone for the last 19 trading sessions. The daily MACD remains bullish, quoting above its zero line and signal line," he added.

Derivative Setup

According to Shah, the current derivative data aligns with the existing bullish chart structure. Lupin's August future surged nearly 3 percent in Wednesday’s trading session. The cumulative open interest for the current, next, and far series also surged by 3.46 percent, indicating an overall long build-up.

Also read: Trade setup for Thursday: Top 15 things to know before the opening bell

For the August expiry, significant call open interest concentration is evident at the 2000 strike, while substantial put open interest is concentrated at the 1800 strike.

"Option chain analysis shows call buying from the 1920 to 1980 CE strikes. On the put side, there is put writing from the 2080 to 1880 strikes. This clearly indicates bullish momentum in the stock," stated Shah.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.