Option strategy of the day|Britannia long built up post Q4 result; use Bull call spread for upside

The highest open interest was recorded in the 5000 PE, which was utilized for writing purposes.

Britannia Industries stock derivatives data shoes a build-up of long position, with addition of over 7 percent in open interest in the early morning sessions on Tuesday, May 7. The stock jumped as much as 2.7 percent to Rs 5,200 in the late morning trade.

Avdhut Bagkar, Derivatives & Technical Analyst at StoxBox recommends taking a long position with a Bull call spread option strategy, to capture this bullish set up.

Buy 1 lot Britannia May 5100 CE (call option) at around Rs 200;

Sell 1 lot Britannia  May 5600 CE (call option) at around Rs 35;

Total cost of this strategy would be Rs 33,000 per lot

Potential profit would be Rs 67,000.

The breakeven point is at  Rs 5267.

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. The bull call strategy is executed by buying call options at a specific strike or exercise price while also selling the same number of calls of the same asset at a higher strike price.

Derivative data

Bagkar observed a long build-up in Britannia Industries. The highest open interest was recorded in the 5000 PE, which was utilized for writing purposes. A long build-up was also noticed in the 5200 CE, followed by the 5300 CE and 5400 CE.

"The overall option chain suggests support around the Rs 5500 level, with a tendency to rally towards 5400. The total volume stands at 6 lakhs, with open interest exceeding 25 lakhs. The PCR for the at-the-money option locates at 0.94, indicating a positive bias. The IV has remained stable at 8 percent," stated Bagkar.

Technical view

Technically, the trend remains bullish, as the price action resulted in a breakout of the trend line on the daily chart. "Sustainability above the key level of the 100-daily moving average, set at 4973, further reinforces a bullish bias. While the stock has entered the overbought territory of the Relative Strength Index (RSI), the price action is able to withstand selling pressure on the higher ground," said Bagkar.

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