Option strategy of the day | Long build up in Dr Lal Path labs; Buy call option for upside

The Implied Volatility (IV) for futures stands at 40 for Dr lal path labs stock

Dr Lal Pathlabs Ltd derivatives data shows a long build-up in the scrip, with the price expected to rise to Rs 2,650. The stock fell 1.2 percent on May 14 to Rs 2,465 on the NSE.

Earlier, on May 13, the open interest in the futures segment increased by 17 per cent, while Dr Lal Pathlabs stock price jumped 6 percent for the day.

According to Avdhut Bagkar, Head of Technical and Derivative Research at Stoxbox, the PCR (put-call ratio) for the stock at-the-money is at 0.68, signalling a favourable bias. Bagkar recommends taking a long call strategy on Dr Lal Pathlabs stock to capture this upside.

"Considering all aspects, we recommend a long call option on Dr Lal Pathlabs, where Rs 2,460 CE (call option) can be bought for Rs 110-100, with a stop loss of Rs 60, and targets of Rs 160 and Rs 200," he said.

Strategy Recommended
Dr Lal Pathlabs Long Call Trade: 30th May Expiry)
Buy Rs 2,460 CE at Rs 110-100
Target: Rs 160; Rs 200
Stop loss: Rs 60

Technical View
Bagkar highlights that the stock has surpassed the 200-day moving average (DMA) on Monday, inducing a positive outlook for the following sessions. “The stock is headed towards the next major hurdle of Rs 2,650. On the downside, unless the key support of Rs 2,360 is breached, the positive bias is likely to persist for a longer duration. The Relative Strength Index (RSI) has yet to enter the overbought territory, indicating more room for upside, shows the daily chart,” said Bagkar.

Derivatives Setup

According to Bagkar, the derivatives data shows a long build-up. “The Open Interest in the future segment increased by 17 per cent, with the price rising close to 4 per cent on Monday. The change in open interest stands at 2,67,900, and traded volumes appear to be 222,53,000. The Implied Volatility (IV) for futures stands at 40, which seems rather high given the overall market trend," he said.

While IV (implied volatility) remained flat, the trend suggests a "Higher High, Higher Low" in the following sessions. The highest open interest was seen in Rs 2,500 CE and Rs 2,600 CE.

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