Option strategy of the day | Long build up in ONGC, use bull call spread for upside

At 9:30 am, ONGC shares trade at Rs 278.70 up Rs 5.75 or 2.11 percent.

Oil and Natural Gas Corporation Ltd shares are showing bullish reversal momentum along with open interest long buildup in the options segment.

"Last week, the derivative data revealed a buildup of long positions in Oil & Natural Gas Corporation, despite lackluster volumes. On Monday, although the price closed 0.45 percent lower, the increase in open interest (OI) by 16 lakh did not trigger any major selling pressure," said Avdhut Bagkar, Derivatives & Technical Analyst at StoxBox.

Bagkar recommends a Bull Call spread strategy to capture the upside momentum:

Trade details:

Options Strategy: Bull Call Spread

Long 25 July 277.50 CE around Rs 8
Short 25 July 290 CE around Rs 4
Maximum profit: Rs 16,500
Maximum loss: Rs 7,600
Risk-reward ratio: 1:2.16
Estimated margin: Rs 27,800

Derivative data:

The traded volume stands at 1.09 crore, and open interest rests at 7.24 crore. "The PCR ratio is currently at 0.46, favoring a bullish reversal. The 25 July 280 CE is observing higher interest, with a change in OI standing at 31 percent. The highest concentration can be seen in the 25 July 275 CE," said Bagkar.

Technical View:

Bagkar notes that the immediate trend in ONGC implies a trendline breakout over the 270 level, which could trigger an upside toward 290. "As long as the support at the Rs 260 mark is protected, the price is expected to remain bullish," he added.

"The weekly chart shows a closing basis support of the 21 EMA, currently placed at the 263 level. While the broader trend has remained stagnant and range-bound, the price action is not allowing selling pressure to dominate the positive bias," Bagkar said.

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