A bearish double top pattern has formed on the daily chart and the price has broken below an ascending trend line, indicating a possible breakout and increased downside risk.
“A sustained move below the critical level of Rs 6,000 could trigger further selling pressure, potentially pushing the stock towards its lower support zones at Rs 5,650-5,500,” said Mandar Bhojane, equity research analyst at Choice Broking. . The Relative Strength Index (RSI) is at 37.56 and trending lower, indicating weakening momentum and rising bearish sentiment. Furthermore, LTIM is trading below its key short-term (20-day) and medium-term (50-day) exponential moving averages (EMAs), reinforcing the negative outlook.“The inability to reclaim these EMAs suggests limited upside potential in the near term.
From a technical point of view, traders should closely monitor key support and resistance levels as a continuation of weakness could see LTIM extend its decline,” Bhojane added.
On the options front, the highest open interest in put options (PE) is at the Rs 6,000 strike, indicating strong support at this level.
Bhojane believes that a close below Rs 5,900 would confirm greater selling pressure, implying greater downside potential.
On the positive side, the highest open interest in Call (CE) options is concentrated at Rs 6,400 and Rs 6,500, indicating strong resistance levels. LTIM is expected to face significant selling pressure around these key resistances.
Given this dynamic, Mandar Bhojane suggests deploying a Bear Put Spread to take advantage of the market’s bearish outlook.
Bear Sell Spread
Traders use this strategy when they expect the price of an underlying to decline in the near future. This involves buying and selling put options with the same expiration but different strike prices.
A put option with a higher strike price is purchased and one with a lower strike price is sold. The highest priced put option is an in-the-money (ITM) option, while the lowest priced put option is an out-of-the-money option. This strategy results in a net debit to the trader as the cost of the ITM put is adjusted with the cash flow generated by shorting the OTM put.
ETMarkets.com(Prices as of October 21)
Below is the profit chart of the strategy:
ETMarkets.com
(Source: options brokerage)
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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