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Why you should avoid buying Polycab stock call options

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Derivatives

Price action since October shows that the stock is trading in a broad sideways trend

Shall I go for call option on the stock of Polycab now or should I wait for further correction?

Senthil Kumar S

The stock of Polycab India (₹2,540.7) gained last week, defying the overall bear trend of the broader market. However, price action since October shows that the stock is trading in a broad sideways trend between ₹2,180 and ₹2,750. So, until either of these levels are breached, the next leg of the trend will remain uncertain.

Currently it is trading a little above the middle of the above-mentioned range and it has a strong resistance at ₹2,600. So, it is not the right time to buy call option on the stock for the near-term as well.

The Put-Call ratio (PCR), at 0.53, is indicating more call writing compared to puts and 2600-strike and 2700-strike calls, with 288 and 303 contracts outstanding respectively, have the highest open interest. This means, participant do not expect a rally beyond these levels and these price points can act as a strong hurdle.

Either buy 2800-strike call at prevailing price if the resistance at ₹2,750 is decisively breached or buy 2,200-strike call if price drops to the range bottom of ₹2,180.

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Published on May 14, 2022

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