Option strategy of the day | Bull call spread after MCX ascending flag pattern breakout

The MCX stock has given a breakout above an ascending flag pattern. On the daily charts, after a week-long consolidation in the congestion zone of 3550-3620, MCX has moved past the resistance  area on good volumes and long OI addition of 2 percent in April Futures.

Avani Bhatt, senior vice-president of derivative research at JM Financial, recommends Bull Call Spread Strategy for 25 April expiry to capture the momentum.

Bull Call Spread Strategy recommended by Bhatt

Buy 3750 CE @ 124-125Sell 3950 CE @ 58-60

Target: Profit Rs 20,000Stop Loss Below Rs 3,500 (spot level)

Technical view

Bhatt notes that the stock has given a breakout above an ascending flag pattern. On the daily charts, after a week-long consolidation in the congestion zone of 3550-3620, MCX moved past the resistance area on good volumes and long OI addition of 2 percent in April Futures.

“In the options segment, buying interest has picked up at 3,750 and 3,800 Calls, unwinding noted in call writing positions at 3600 strike indicating weakening of resistance. The target for this breakout stands at 4000,” said Bhatt.

“Since the stock has already seen aggressive short covering followed by long addition immediately after the breakout, the pace of up move from here on can be gradual with some bouts of intermediate profit / cool-offs. Keeping this point under consideration, we recommend an options strategy that is designed to take care of the time value depreciation factor in option premiums and ensure profits once the expected up move occurs.” Bhatt added.

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