CATL rises nearly 4% after a five-day rally: momentum is strong, but is it worth chasing calls at this level?

CATL $CATL (03750.HK)$ It rose another 3.92% yesterday, marking its fifth straight gain and breaking above the 30-day moving average and the upper Bollinger Band. Open interest in calls increased by 1.29%, and bull warrant open interest also rose by 2.52%.

If we look only at direction, CATL is clearly a strong performer.

But the issue is also obvious.

Current price is HK$649.50, with the first resistance at HK$653—just HK$3.50 away, less than 1%.

So today’s discussion isn’t about whether we’re bullish or bearish on CATL, but rather:

Although the trend is strong, is the entry point already too close to resistance?

Method 1: Chase calls directly now

The most straightforward approach is, of course, buying calls at the current price.

If the stock price immediately breaks above RMB 653, you can quickly participate in the next leg of the rally.

However, the risk is also clear. CATL has risen for five consecutive days and has broken through the upper Bollinger Band. If it fails to break through RMB 653, the call option could be affected by three factors simultaneously:

– Underlying stock pullback;

– Time value decay;

– Decline in implied volatility.

Call options worth watching include:

If the price hasn’t yet broken through RMB 653, I would prefer the lower-leverage Guojun 29100 instead, as it would better withstand a consolidation phase.

Citi 16117 is more suitable for use only after the breakout.

Method 2: Wait until the price breaks above RMB 653 before entering

This is a clearer trend-following approach.

If CATL breaks above RMB 653 and stabilizes there, the next resistance level is at RMB 668.99, offering potential upside of approximately 2.5%.

Although the entry price is slightly higher, it comes with clearer directional conviction.

In addition to calls, bull certificates are also worth watching:

Bull certificates do not suffer from time value decay but carry a knock-out risk. Therefore, if the stock briefly pierces RMB 653 without stabilizing, chasing with bull certificates would be riskier than using calls.

I would wait until the market close—or at least until there’s clear buying support—before considering bull certificates.

Method 3: Wait for a pullback to around RMB 629

This approach offers the best risk-reward ratio, though such a pullback may not necessarily occur.

RMB 629 is the first support level, about 3.2% below the current price. If the stock pulls back but holds above RMB 629 and then resumes its upward move, the entry point would be significantly better than chasing it now.

Moreover, the stop-loss level would also be clearer.

– Holding above RMB 629: the bullish structure remains intact;

– Breach of HK$629: next support level at HK$621;

– If HK$621 is also breached: the original bullish view needs to be reassessed.

If the stock price meets resistance at HK$653 or breaks below HK$629, consider Guojun put warrant 29641 with approximately 4.3x leverage.

Regarding bear warrants:

The 13.8x bear warrant should not be bought solely because the stock price has risen significantly. Sufficient justification requires clear resistance at HK$653 or an official break below HK$629.

Can the HK$685 bear warrant zone be considered a target?

CATL’s bear warrant concentration zone is between HK$685 and HK$689.5, while the bull warrant concentration zone lies between HK$570 and HK$574.5.

The bear warrant concentration zone is above the second resistance level of HK$668.99.

If the stock price successively breaks through HK$653 and HK$668.99 and then approaches HK$685, the risk of forced redemption of bear warrants could indeed increase volatility.

However, this does not mean CATL will necessarily rise to HK$685.

There are still two technical resistance levels to address in between; you can't skip past RMB 653 and RMB 668.99 and directly target the heavy volume zone.

Among these three approaches, which one would I choose?

– Chasing calls now: Fastest, but worst entry position;

– Enter after breaking above RMB 653: Clearest directional signal;

– Wait for a pullback to hold steady at RMB 629 before entering: Best risk-reward ratio for entry.

I’d lean toward the second or third approach.

CATL is indeed showing strong momentum, but the most common trap with such strong stocks is that investors get the direction right yet end up struggling because they chased in at too high a price.

A good stock and a sound direction do not mean it's suitable to enter at any price.

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