Option strategy of the day | Horizontal trendline breakout in Titan; use Bull call spread for upside

Stock market trend

Titan Company Ltd stock has given a horizontal trendline breakout on the daily scale, with traders eyeing Rs 4,000 share price target. The breakout is confirmed by volumes climbing above the 50-week average. On 5 September, Titan stock was trading at Rs 3,729.75 on NSE in the afternoon trade, up 3.4 percent from the previous close.

According to Sudeep Shah, DVP and Head of Derivatives and Technical Research at SBI Securities, "The stock is trading above its short- and long-term moving averages and is on a bullish trajectory. It is likely to test Rs 3920-level, followed by Rs 4000, in the short term."

Titan Option Strategy: Bull Call Spread

Sudeep Shah recommends a bull call spread option strategy to capitalise the momentum in the Titan stock:

Underlying Stock: Titan
Strategy: Bull Call Spread (26 September Expiry)
Buy: 3760 CE (call option) at CMP (current market price) Rs 82
Sell: 3780 CE at CMP 74
Net Outflow: 8 points
Date of Initiation: 5 September
Date of Expiry: 26 September
Maximum Potential Risk: 8 points (Rs 1,400 per pair)
Maximum Potential Gain: 12 points (Rs 2,100)
Profitable Zone: Above 3768

Technical View:

Shah notes that the stock is currently trading above its short- and long-term moving averages, which are both trending upward, indicating a strong trend. "The daily RSI is in the super bullish zone, while the ADX, a trend strength indicator, is at 28.59 and rising. Additionally, the directional indicators are in buy mode, with +DI above –DI," he added.

Derivative Setup:

Shah highlights that the current derivative data aligns with the bullish chart structure. For the September expiry, there is a significant concentration of call open interest at the 3800 strike, while substantial open interest on the put side is concentrated at the 3700 strike.

"Option chain analysis shows put writing from 3840 to 3560 strikes, and call buying from 3660 to 4120 strikes, indicating bullish momentum in the stock," Shah said.

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