Option strategy of the day | Buy HDFC AMC call as counter sees breakout and long build-up

The stock of HDFC AMC Ltd has formed a strong base near the 50-day EMA of 3,650-3,670 and is on the verge of a downward sloping trendline breakout. On Tuesday, the stock recorded above-50-day average volume, which is a sign of accumulation before actual breakout.

Sudeep Shah, DVP and head of derivative and technical research at SBI Securities, recommends using this strategy to capitalise on the move in HDFC AMC:

Buy HDFCAMC 3800 April CE at Rs 101-95

Stop loss at Rs 75

Target of Rs 150-170

Technical setup: Downward sloping trendline breakout

“HDFC AMC stock has marked a high of 4066 on February 27, and thereafter, it has witnessed minor correction. During the period of correction, the volume activity was mostly below average, which indicates its routine decline after the sharp upside rally. The correction halted near the 50-day EMA level, ” said Shah.

Shah highlights that the stock has formed strong base near 50-day EMA level of 3650-3670 and currently, it is on the verge of downward sloping trendline breakout. Currently, the stock is trading above its short and long-term moving averages, momentum indicators and oscillators are also supporting the overall bullish chart structure.

Derivatives Data

The derivative data aligns with the prevailing bullish chart structure. On Tuesday, HDFCAMC April futures have surged by 2.28 percent accompanied by a substantial increase of 11.09 percent in cumulative open interest across the current, next, and far series, signalling a significant accumulation of long positions.

On the options front, Shah emphasized that, there is a notable concentration of call open interest at the 3900 strike, with significant additions of open interest on the put side observed at the 3700 and 3600 strike. 3850 CE and 3800 CE strikes have witnessed call buying. While, on the put side, from 3750 to 3600 strike have witnessed put writing.

“This collective data suggests a robust bullish sentiment among market participants, with a favourable outlook for further upward price movement. We expect stock to move upto 3950-3980 and hence can be bought at CMP 3795-3810 with a Stop loss at 3730, ” said Shah.

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