The stock of Dr Lal Path Labs (₹2,040.9) was trading flat for nearly a month. But last week, it gathered momentum and broke out of a key resistance at ₹2,000.

This has opened the door for further upside and the likelihood of the stock reaching ₹2,200 in the next couple of weeks is high. That said, we might see a minor decline where it could test the resistance-turned-support level of ₹2,000.

Trade strategy

Considering that the chance for a rally is high, we recommend buying a call option. Traders can go long on May expiry 2100-strike call option, which closed at ₹29.40.

The call option might not open exactly at ₹29.4 on Monday. Therefore, traders can have a range within which they can execute the order. We suggest buying 2100-call in the ₹25-30 price band. Add one more lot in case the price softens to ₹10. Thus, the average buy price would be between ₹18 and ₹20. Since the lot size of Dr Lal Path Labs’ derivative contract is 250 shares, buying two lots of call option would result in an outflow of about ₹10,000.

Since the capital outlay is on the lower side, traders can consider holding the call until expiry — till May 25. But before the expiration date, if the option premium rises to ₹40, exit one lot. Liquidate the remaining one lot when the price rises to ₹70.

Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading

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