Option strategy of the day | Long additions in Tata communications; use 'bull' call spread for upside

At 10:02 am on June 3, the Sensex was up 548.33 points or 0.69 percent at 79,989.78, and the Nifty was up 159.70 points or 0.66 percent at 24,283.50.

Tata Communications Ltd shares exhibit a bullish engulfing pattern on the technical charts, accompanied by futures long additions, indicating upside potential.

According to Avani Bhatt, Vice President of Derivative Research at JM Financial: "After the recent correction in mid-June from 1926 to 1820, Tata Communications has undergone a 9-day consolidation, taking support from the 50-day EMA on the daily charts. The stock has now closed above the highs of the last two weeks and is well poised to extend the uptrend."

Bhatt recommends a bull call spread strategy to capture the upside potential.

Trade Details: Tata Communications Bull Call Spread

Buy  July 1900 CE at Rs 61 and
SELL 2000 CE at Rs 26Target Profit: Rs. 16,000

Target Price: Rs 2000/2050
Stop Loss: Rs 1830

Technical View

"A bullish engulfing pattern has formed on the weekly and daily time frames. July futures witnessed a long addition of nearly 3 percent," said Bhatt.

Bhatt also notes that the options data is positive. Strong open interest (OI) additions at the 1900 PE indicate early signs of a support base formation near the 1900 mark, suggesting a likely move towards targets of Rs 2000-2050 in a short span of time.

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