F&O Radar | Deploy Bear Put Spread in LTIM stock to benefit from bearish market sentiment

The shares of LTIMindtree (LTIM) are currently trading at Rs 5,943, reflecting a short-term downtrend after pulling back from higher levels.

A bearish double top pattern has formed on the daily chart, and the price has broken below a rising trend line, signaling a potential breakdown and further downside risk.

“A sustained move below the critical Rs 6000 level could trigger increased selling pressure, potentially driving the stock towards its lower support zones at Rs 5,650- Rs 5,500,” said Mandar Bhojane, Equity Research Analyst at Choice Broking.

The Relative Strength Index (RSI) is at 37.56 and trending downward, indicating weakening momentum and a growing bearish sentiment. Additionally, 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 standpoint, traders should closely monitor key support and resistance levels, as a continuation of the weakness could see LTIM extend its decline,” Bhojane added.

On the options front, the highest open interest in the Put (PE) options is at the Rs 6,000 strike, indicating strong support at this level.

Bhojane believes that a closing below Rs 5,900 would confirm increased selling pressure, implying further downside potential.

On the upside, 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 these dynamics, Mandar Bhojane suggests deploying a Bear Put Spread to take advantage of the market's bearish outlook.

Bear Put 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 of the same expiry but different strike prices.

A higher strike price put is bought and a lower priced one is sold. The higher priced put is in-the-money (ITM) while a lower priced one is an out-of-the-money option. This strategy results in a net debit for the trader as the cost of the ITM put gets adjusted with the cash flow from shorting the OTM put.

(Prices as of October 21)

Below is the payoff graph of the strategy:

(Source: Choice Broking)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)