Deploy Broken Wing in LIC Housing Finance to benefit from bearish outlook
Synopsis LIC Housing Finance has entered a bearish phase after breaking down from a Rising Wedge pattern. With weakening technicals, rising volumes, and a declining RSI, analysts suggest a Broken Wing Butterfly strategy to benefit from the stock's downside while maintaining a defined risk profile. LIC Housing Finance shares are currently trading at Rs 590.30 and have recently entered a corrective phase after a prolonged consolidation. The stock had formed a Rising Wedge pattern on the daily chart—a bearish setup that often signals a potential reversal.
ADVERTISEMENT After facing consistent rejection from higher levels, it has now given a breakdown below the wedge, indicating growing selling pressure and a possible trend reversal.The stock has slipped below all its key short-term and medium-term exponential moving averages (EMAs), reflecting weakening structure and a lack of buying interest at crucial support zones.
'This breakdown is further supported by increasing volumes, hinting at strong participation from sellers,' noted Hardik Matalia, Derivative Analyst at Choice Broking.
The Relative Strength Index (RSI) is currently at 37.21 and trending downward, suggesting intensifying bearish momentum with room for further downside.'If LICHSGFIN breaches below the critical support level of Rs 580, it may trigger additional downside and extend the decline towards lower levels in the near term. Sustaining below this zone would validate the pattern breakdown and invite further selling interest,' he added.
ADVERTISEMENT On the derivatives front, the highest Put Open Interest (OI) is at the Rs 580 strike, making it a crucial support level.Matalia further added that a breakdown below this could lead to unwinding of long positions. On the Call side, the highest OI is seen at Rs 600, followed by Rs 620, which are expected to act as immediate resistance levels on any attempted pullback.
ADVERTISEMENT With this, Hardik Matalia suggests deploying a Broken Wing strategy in LIC Housing Finance to play the bearish outlook in the stock.
The Broken Wing Options Strategy, specifically the Broken Wing Butterfly (BWB), is a variation of the classic butterfly spread, which is used to take advantage of directional market moves while reducing risk and cost. It is called a "broken wing" because one of the wings of the butterfly is intentionally unbalanced to create a skewed risk/reward profile.This strategy lowers the initial cost or generates a credit while limiting both risk and reward on one side of the trade, typically used to capitalise on small directional moves with defined risk.
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Below is the payoff graph of the strategy: (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)
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