Option Strategy of the Day| Technical indicators show reversal signals in Bank of Baroda; Buy Vanilla Call for upside

On May 22, during morning trade, Bank of Baroda shares were up over 0.43 percent, surpassing Rs 266.

Bank of Baroda Ltd shares have found support at the 20-day Exponential Moving Average (EMA) of 256 on weekly charts for two consecutive weeks, showing signs of reversal. On May 22, during morning trade, Bank of Baroda shares were up over 0.43 percent, surpassing Rs 266.

On the daily charts, the stock price consolidated throughout the previous week in the range of 259-264. The price action on Monday saw a move above this congestion zone, closing above 265 and negating the losses of the last two days. Avani Bhatt, Senior Vice President of Derivative Research at JM Financial, recommends adopting a Vanilla call option strategy on Bank of Baroda stock to capture this momentum.

Recommended Strategy:
Bank of Baroda: Long Call (30th May Expiry)

- Buy May 270 CE at Rs 4.5
- Target: Rs 9
- Stop loss: Rs 2.25

Technical View:

"In the recent correction from the highs of 285, the stock found support at the 20-day EMA of 256 on weekly charts for two consecutive weeks, showing signs of reversal. The short-term exponential moving averages of 20 and 50 EMA are now below the price action and will continue to support the recovery in prices. On technical parameters, the stock is poised to move up to 275-276 in the short term," highlighted Bhatt.

Derivative Setup:

Derivative parameters also indicate a bullish outlook. May futures witnessed a long open interest addition of 2 percent. "Unwinding noted in call writing positions at 260 and 265 strikes for the May series indicates weakening resistance at higher levels," said Bhatt.

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