Option strategy of the day | Long build up in Hindustan Unilever; use bull call spread for upside

Hindustan Unilever Ltd shares are signalling bullish momentum following a long build-up in the derivatives segment and a trend line breakout.

"The open interest has shifted in favour of the bulls, with the price aiming to reach higher levels in the upcoming sessions," said Avdhut Bagkar, Technical and Derivative Analyst at Stoxbox.

The OI (open interest) in futures stands at 1.79 crore, with a change in OI of 1.92 lakh. The total volumes traded are at 22,083, he added.

Bagkar recommends a Bull Call spread to capture the upside potential:

Strategy Recommended:Buy 25 July Rs 2,600 CE (call option) at Rs 45Sell 25 July Rs 2,700 CE at Rs 15

The maximum profit is Rs 20,805 and the maximum loss is Rs 9,195. The risk-reward ratio is 1:2.26. The estimated margin stands at Rs 2,710.

Technical View:

The stock is maintaining upward momentum above the key support of the 200-day moving average (DMA) set at the 2415 level. "The trend line breakout also confirms the positive upside for the following sessions. The price action suggests a rally toward 2700," said Bagkar.

Derivative Set-up:

"The Put-Call Ratio (PCR) is at 0.57, indicating it is trading at the lower end of the selling pressure," he added. The highest OI was seen in the Rs 2,600 CE (call option), followed by Rs 2,500 PE (put option), with the highest concentration at Rs 2,500 CE. At-the-money implied volatility (IV) stands at 2.63 percent.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.