Option Strategy of the day | Long build up in Max Financial Services; Use Bull call spread for upside

The bull call spread is a type of options trading strategy that involves two call options. This type of strategy is used when the trader expects a moderate rise in the price of an underlying asset.

Max Financial Services stock may be headed for gains, on the back of decent open interest build up in the previous trading session, supported by a favourable put-call ratio. The stock saw an addition of 1.27 lakh open interest (OI) in the June futures. As of 9:43 am on June 18, Max Financial shares were trading at Rs 984.60, down 0.9 percent.

According to Avdhut Bagkar, Derivatives & Technical Analyst at StoxBox, "The PCR ratio and the addition of OI on the positive side suggest a bullish momentum in play, with the price expected to scale higher levels."

Max Financial Services Ltd option strategy: Use Bull Call Spread to capture upside momentum 

Trade Position in Max Financial Services Ltd:

Buy 27 June 24,990 CE (call option) around Rs 27
Sell 27 June 24,1050 CE at Rs 10

The maximum profit is Rs 33,500, and the maximum loss is Rs 14,500. The risk-reward ratio is 1:2.3, with the estimated margin standing at Rs 27,800.

Derivative Set-up:

At-the-money option has seen a 14 percent change, standing at Rs 42.15. The PCR ratio is at 0.4. "The OI in the 27 JUN 1,000 CE witnessed a massive addition, totaling 4.75 lakhs, while merely 60,000 were seen in the 27JUN24 1000 PE," said Bagkar.

Bagkar notes that the PCR ratio and the addition of OI on the positive side suggest a bullish momentum in play, with the price expected to scale higher levels in the coming sessions.

Technical View:

The trend line breakout on the daily chart indicates a favorable rally ahead in the upcoming sessions. "The breakout is supported by resilient volumes, implying a supportive underlying bias. Furthermore, the stock is trading above its 200-day moving average (DMA) of 955 and its 50-DMA placed at 988, adding more positivity to the bullish sentiment. The price action reveals a move towards the 1050 and 1100 levels," said Bagkar.

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