Option strategy of the day | JSPL chart signals breakdown; bear spread recommended

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Jindal Steel and Power Ltd shares' technical charts confirm a bearish pennant breakdown on the daily scale, corroborated by above-average volume.

According to Sudeep Shah, DVP and Head of Technical and Derivative Research at SBI Securities: "Currently, it is trading below its 20 and 50-day EMA levels. These averages have started edging lower. Furthermore, the rising slope of the 100 and 200-day EMA has significantly slowed down, which is a bearish sign. Additionally, the daily RSI has slipped below the 40 mark for the first time since November 2023."

Shah recommends taking a bear spread option strategy to benefit from the downtrend momentum:

Spread Recommended:
JINDALSTEL Spread Trade (Bear Spread - 25th July Expiry)

Buy 990 PE at CMP Rs 29
Sell 980 PE at CMP Rs 25
Net Outflow (Max Risk): 4 points
Date of Initiation: 18th July
Date of Expiry: 25th July
Maximum Potential Risk: 4 points (Rs 2,500 per pair)
Maximum Potential Gain: 6 points (Rs 3,750)
Profitable Zone: Below 986

Derivative Setup
Shah notes that the current derivative data is in sync with the existing bearish chart structure. A significant concentration of call open interest is evident at the 1000 strike, while substantial open interest on the put side is concentrated at the 950 strike. "Talking about the option chain, strikes from 1060 to 950 CE have witnessed call writing. Meanwhile, on the put side, strikes from 1010 to 940 have seen put buying. This clearly indicates bearish momentum in the stock," he added.

Shah emphasised that this collective data suggests a bearish sentiment in the stock, which is likely to test the level of 940, followed by 910 in the short term.

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