I bought the August expiry 5600-strike call option on Dixon Technologies for ₹29. Should I exit or wait until expiry? - Abrar Ingaria

Dixon Technologies (₹4,900): The stock broke out of the resistance at ₹3,000 in May and ever since, it has been in an uptrend. However, since the beginning of this month, although the price has appreciated, the scrip has been showing a loss of upward momentum. While there are no signs of a bearish reversal, a decisive breach of ₹5,000-mark might be delayed. This may not occur before the expiry of the August contracts. Even if there is a breakout, a rally to ₹5,600, the strike price of the call option that you hold, is less likely.

But that said, the option premium is now at around ₹3 and so, there is not much downside risk left in this trade. Therefore, you can continue to hold this option.

In case the stock surpasses ₹5,000 before August 31, the expiry day, and sees an upswing, we expect it to reach ₹5,300. The probability of a move above this level before expiry is very low. So, if at all there is a rally to ₹5,300, liquidate the option at the prevailing price, even if it is less than your purchase price. Here, you can minimise the loss, which is the best we can do given the prevailing conditions.

Send your queries to derivatives@thehindu.co.in