The Jade Lizard Options Strategy is a risk-defined bull put credit spread developed by the original Lizard Trader. Spread options with different strike prices, but the same expiration dates allow the trader to profit from changes in the underlying asset’s price without worrying about their direction or magnitude. The strategy uses one put option with a higher strike price and two with weaker strike prices. There is an identical expiration date for the three put options. The difference between the sales strike and the width of the Call Spread shall be equivalent to the Net Cost of this position. The maximum profit potential is limited to that initial payment, and the full loss potential is zero.
To understand what are option trading and if you are willing to keep up with options trading, it is necessary to discuss Jade Lizard’s options strategy and its potential to make a profit, providing security for your account.
Understanding The Jade Lizard Options Strategy
Compared to other neutral strategies, the Jade Lizard Option Strategy is an options trading strategy designed to profit from small increases or decreases in an underlying asset’s price with reduced risk. Combining horizontal spreads can be created using any options available under All Calls or Any Put Options. This is best if you expect a security’s price movements to be slightly positive or neutral but aren’t sure where they will go. In addition, it can also be used when you think the market is neutral but expect relatively large price movements in a particular stock.
The Jade Lizard combines two vertical spreads with the same number of options for calls and puts. At the middle strike price, both spreads have extended and short options. The Jade Lizard Options Strategy can be applied to underlying securities like equities, exchange-traded funds, or indices. The strategy is profitable when the underlying stock increases or falls above certain levels while limiting the maximum loss on the cost of the strategy to the net premium paid.
Working On Jade Lizard Option Strategy
The steps involved in the working procedure of the Jade Lizard option strategy are explained below;
It requires you to select a stock that has signs of bullishness and does not move extremely volatilely. The relative prices and volatility can be calculated in several ways. To determine this, you can use “Covered Call” or “Bull Put Spread.”
The easiest way to do it is by buying an Option in the Money Call And Selling Out of The Money Put option. Net debt is the maximum amount of money that can be lost from this transaction if their strike prices are different. Then it is possible to choose an optimum range based on your risk tolerance and investment objectives.
After using the Buy on and Close Sell on open technique, there are two ways to close a transaction. First, let it become worthless when it expires. If you’re concerned that stocks will climb over the strike price, the other choice is to lose money by selling call options before the strike price.
Determine your gain or loss from trading your option position at expiration.
Benefits Of Jade Lizard In Options Trading
One of the best options trading strategies, the jade lizard, is a good choice for all those interested in options trading. However, it is more appropriate for those familiar with the options market and with a minimum of relevant experience in this area since it is not easy to acquire.
- The jade lizard’s first advantage is its initial profit potential. That is one of the primary reasons for its huge popularity among traders.
- The second advantage is that it may be used in bullish and bearish markets, irrespective of its volatility. This means traders can use this strategy when dealing in stocks, foreign exchange, and other underlying assets.
- The third benefit is that it can be closed before expiration. The transaction will not be completely lost if call options expire without sufficient cash. Traders may end the put spread and their trading expenses while still being in the black.
- A fourth advantage of such a strategy is that commissions are not paid on the purchase or sale side. In other words, traders can keep much of their gains by only paying commissions for expiring options.
- The fifth advantage is that traders can leverage this trade. The trader, on the other hand, may reduce its leverage by selling fewer contracts or even one contract. However, traders should be wary of the risks that come with this strategy since leverage always leads to losses.
In such a context, the jade lizard is much more risky because it will reduce your breakeven points on either side and put you at a higher risk of losses. The only good news is that this strategy limits its risk and caps it at the entry level, thus being less risky than similar strategies such as an iron condor or a butterfly spread. However, the Share India trading platform is the best online share trading app for profitable options trading. Share India offers various tools and other financial services to its customers.