Option strategy of the day| Reversal from support zone signals upside for Axis Bank

Axis Bank shares surged over 2 percent on May 23, climbing above Rs 1,149.

Axis Bank shares surged over 2 percent on May 23, climbing above Rs 1,149. The stock has established a strong base near the Rs 1,110-1,115 support zone, showing signs of a reversal.

Sudeep Shah, DVP and Head of Technical and Derivative Research at SBI Securities, stated, “The derivative data aligns with the prevailing bullish chart structure.” Shah recommended a bull spread strategy on Axis Bank stock to capitalise on this upside momentum.

Recommended Strategy:

Axis Bank Bull Spread Trade: (Bull Spread - 30th May Expiry)

Buy Rs 1,150 CE at Rs 17
Sell Rs 1,160 CE at Rs 13
Net Outflow (Max Risk): 4 points
Date of Initiation: 23 May
Date of Expiry: 30 May
Maximum Potential Risk: 4 points (Rs 2,500 per pair)
Maximum Potential Gain: 6 points (Rs 3,750)
Profitable Zone: Above Rs 1,154
Margin Required: Approx. Rs 36,300

The bull call spread is an options trading strategy involving two call options. This strategy is used when a trader expects a moderate rise in the price of an underlying asset. It is executed by buying call options at a specific strike price and selling the same number of calls of the same asset at a higher strike price.

Technical view

Axis Bank's stock reached a high of Rs 1,182 in the last week of April before entering a correction period. “Interestingly, during the correction, volume activity was mostly below average, indicating a routine decline after a sharp rally. The correction halted near the 20-day EMA level, which coincides with the 38.2 percent Fibonacci retracement level of its prior upward rally (Rs 996-1,182),” said Shah.

Now, the reversal from the support zone is supported by momentum indicators and oscillators, he added. “The daily RSI has surged above 60 and is on a rising trajectory,” he said.

Derivative setup

In the May series, there is a notable concentration of call open interest at Rs 1,200 strike in the Axis Bank stock, with significant additions of open interest on the put side at the Rs 1,130 strike. From Rs 1,200 to Rs 1,150 CE strikes, there has been either call buying or call short covering. On the put side, from Rs 1,170 to Rs 1,090 strikes, there has been put writing. “This clearly indicates bullish momentum in the stock, with a favourable outlook for further upward price movement,” said Shah.

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