Option strategy | Bullish continuation technical pattern signals upside in Kotak Mahindra Bank
To capitalize on this potential upside, ICICI Securities’ Jay Thakkar suggests a Bull Call Spread option strategy
Kotak Mahindra Bank shares have broken out of a symmetrical triangle pattern, which is a bullish continuation signal. “The momentum indicator MACD is firmly in buy mode on both the daily and weekly charts, with a positive divergence, increasing the likelihood of an upside,” said Jay Thakkar, Head of Derivative and Quantitative Research at ICICI Securities.
To capitalize on this potential upside, Thakkar suggests a Bull Call Spread option strategy:
Bull Call Spread on Kotak Mahindra Bank
Buy 1 lot of Kotak Bank 1840 CE at CMP: Rs 19.20
Sell 1 lot of Kotak Bank 1880 CE at CMP: Rs 9
Total outflow: 10.20 points, which translates to a maximum loss of Rs 4,080 (since the lot size is 400 shares). The maximum profit is 29.80 points, or Rs 11,920, offering a favorable risk-reward ratio of 1:2.92.
Technical Outlook
Thakkar notes that at the start of the September series, the stock saw some short positions. However, it found strong support at the lower end of the symmetrical triangle, leading to long positions being built up. “The Put-Call Ratio (PCR) is at 0.58, which is still in oversold territory. With this breakout, it has moved slightly to 0.60, indicating further room for short-covering. The stock closed at 1,831, above its max pain and modified max pain levels of 1,800 and 1,814, which is a bullish signal,” Thakkar added.
He further points out that Kotak Mahindra Bank closed above the critical 1,800 level, where it had the highest call open interest (OI). Significant unwinding has occurred at the 1,800 call strike, and the next highest call OI is now at the 1,900 level. Therefore, Thakkar recommends a bull call spread between 1,840 and 1,880, staying below the 1,900 level for the September series.
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