Option strategy of the day | Long build up in Hindustan Unilever; use bull call spread for upside

HUL stock was trading at Rs 2,586 at 10:30 am on July 9.

Hindustan Unilever Ltd shares are signalling bullish momentum following a long build-up in the derivatives segment and a trend line breakout.

"The open interest has shifted in favour of the bulls, with the price aiming to reach higher levels in the upcoming sessions," said Avdhut Bagkar, Technical and Derivative Analyst at Stoxbox.

The OI (open interest) in futures stands at 1.79 crore, with a change in OI of 1.92 lakh. The total volumes traded are at 22,083, he added.

Bagkar recommends a Bull Call spread to capture the upside potential:

Strategy Recommended:

Buy 25 July Rs 2,600 CE (call option) at Rs 45
Sell 25 July Rs 2,700 CE at Rs 15
The maximum profit is Rs 20,805 and the maximum loss is Rs 9,195. The risk-reward ratio is 1:2.26. The estimated margin stands at Rs 2,710.

Technical View:

The stock is maintaining upward momentum above the key support of the 200-day moving average (DMA) set at the 2415 level. "The trend line breakout also confirms the positive upside for the following sessions. The price action suggests a rally toward 2700," said Bagkar.

Derivative Set-up:

"The Put-Call Ratio (PCR) is at 0.57, indicating it is trading at the lower end of the selling pressure," he added. The highest OI was seen in the Rs 2,600 CE (call option), followed by Rs 2,500 PE (put option), with the highest concentration at Rs 2,500 CE. At-the-money implied volatility (IV) stands at 2.63 percent.

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