Kotak Mahindra Bank shares have broken out of the symmetrical triangle pattern. This is a sign of continuation of the uptrend. Jai Thakkar, Head of Derivatives and Quantitative Research at ICICI Securities, says that the momentum indicator MACD is strongly in buy mode on both daily and weekly charts. With their positive divergence, the possibility of the stock moving upwards is increasing. To take advantage of this potential uptrend in the stock, Thakkar is suggesting a bull call spread option strategy:
Bull Call Spread on Kotak Mahindra Bank
Kotak Bank 1840 CE 1 lot CMP: Buy at Rs. 19.20
Kotak Bank 1880 CE 1 lot CMP: Sell at Rs 9
Total Withdrawal: 10.20 points, which translates into 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, which offers a better risk-reward ratio of 1:2.92.
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Technical Owl
Thakkar said the stock witnessed some short positions at the start of the September series. However, it found strong support at the lower end of the symmetrical triangle, which led to long positions. “The put-call ratio (PCR) is at 0.58, which is still in the oversold zone. With this breakout, it has risen slightly to 0.60, indicating further scope for short-covering. The stock closed at 1,831, which is above its maximum pen and revised maximum pen levels of 1,800 and 1,814. This is a bullish signal.
He further added that Kotak Mahindra Bank closed above the crucial level of 1,800, where its call open interest (OI) was highest. There has been a lot of unwinding at the 1,800 call strike, and the next highest call OI is now at 1,900 levels. Hence, Thakkar recommends a bull call spread between 1,840 and 1,880 while staying below 1,900 levels for the September series.
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