Option strategy of the day | Long additions in Sun Pharma; use bull call spread for upside

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Sun Pharmaceutical Industries Ltd shares have confirmed a pattern of higher highs and higher lows, signaling bullish momentum.

According to Jay Thakkar, Head of Derivative and Quantitative Research at ICICI Securities, "Sun Pharmaceutical stock has shown continuous long additions since its recent lows, indicating a strong uptrend."

To capitalise on this upward momentum, Thakkar recommends a bull call spread:

Trade Details: Bull call spread July Expiry

- Buy 1 Lot of 1570 CE at Rs 25.35
- Sell 1 Lot of 1620 CE at Rs 9.20

The total outflow is 16.15 points, representing the maximum risk if Sunpharma closes below 1570 on the day of monthly expiry.

"The maximum gain is 33.85 points, giving a risk-reward ratio of more than 1:2, which is favorable for bulls in the short term. The breakeven for this strategy is 1586.15, so any level above this will lead to profit, " said Thakkar.

Technical View

Thakkar highlights that the stock has confirmed higher highs and higher lows by surpassing the previous swing resistance at 1,540 levels. "Currently, there is a short-term hurdle at 1,570. Once this is cleared, there is no major resistance until 1,620 levels, which is why these two strikes are selected. The risk-reward ratio is also quite positive for these strikes," he said.

Derivative Data

From a derivatives perspective, Thakkar emphasised that the stock has shown continuous long additions since its recent lows, indicating a strong uptrend. "The Nifty Pharma Index has also broken out from sideways consolidation, which is positive in the near term. Based on options data, above 1,540 levels, the stock is likely to move towards 1,600. There is a minor hurdle at 1,560 levels as well, but the upside probability is higher," he added.

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