After we consider the stock price will rise somewhat, we are able to trade a Jade Lizard options technique to make the most of a rather bullish outlook.
Today, we share what a Jade Lizard is, and how you can find the perfect entry points using the Options Scanner.
What Is a Jade Lizard Options Strategy?
A Jade Lizard is a rather bullish options strategy made up of a brief Put and a Bear Call Spread. The trade is most profitable when the stock price rises somewhat bit.
If we consider the AMZN stock price will move up somewhat in the following few months, we are able to sell a Jade Lizard to make the most of the slight bullish move:
- Trade a 0.30 delta short Put near the market price to define the minimum stock price.
- Sell a 0.20 delta Bear Call Credit Spread to define the utmost stock price.
The Jade Lizard is most profitable when AMZN stock price rises somewhat.
The trade will probably be profitable if AMZN rises somewhat. But when the stock price falls, the utmost loss is buying 100 worthless stocks from the assigned Put contract.
Key Points to Trading Jade Lizards
A Jade Lizard is made up of three option contracts, and it’s quite much like neutral trades like a Strangle (2 contracts) and an Iron Condor (4 contracts).
We would like to enter a Jade Lizard when the choice’s value is high, then exit after theta and vega depreciate the choice’s value.
Vega is the changes to options value with respect to changes in IV.
Since we would like to sell high and buy low, we’d like to sell to open at high IV, then buy to shut when vega causes the choice’s value to decay at low IV.
Theta is the changes to options value with respect to changes in time.
Selling options with greater than 30 days to expiration have a predictable time value decay.
From our experience, selling options with greater than 30 days to expiration have a predictable time value decay. So we will be patient and earn a profit as time passes.
A Jade Lizard has no upside risk even when the stock price goes up loads. This requires the premium received to be greater than the width of the Call Credit Spread. This fashion the trade doesn’t lose even when the stock price rises beyond the Call Spread.
The Jade Lizard has no upside risk.
Gamma is the changes to delta with respect to changes in stock price. Additionally it is the acceleration to options prices with respect to changes in stock price.
Gamma grows when the choices are near expiration, resulting in big fluctuations in options value. So whether our Jade Lizard is profitable or not, we prefer to shut the trade or roll it to the following month before 14 days to expiration, to scale back gamma risks.
We also use fundamental evaluation to decide on Jade Lizard stocks with Fair Values greater than the market prices, to offer us more confidence in a bullish outlook.
Best Options Scanner Settings for Jade Lizards
Options Scanner is designed to search out high probability and high return short neutral options in seconds. Listed here are some suggestions for using the filter function to search out the perfect Jade Lizard entry points:
- We would like to decide on opportunities with greater than 30 DTE to get the safest theta decay and fewer gamma.
- We will filter IV Perc >67% to search out opportunities which have a high likelihood of contracting IV and vega in our favour.
- We should always also avoid underlying which have an upcoming Earnings Date in 30 days to scale back the prospect of huge fluctuations.
The filter feature helps us find the perfect Jade Lizard entry points.
Finally, since Jade Lizards have similar properties to Strangles, we sort the Strangles ROC by descending order to get ideas for high-return Jade Lizard trades.
Best Jade Lizard Opportunities Right Now
The filtered list shows that ROKU’s $133.70 Fair Value is higher than the present market price. It also has a 97% IV Percentile that has a high likelihood of reducing IV in the long run.
ROKU is the perfect Jade Lizard opportunity at once.
So ROKU matches the bullish and high IV criteria that make it a great selection for Jade Lizard options:
- Sell a Put at 0.40 delta.
- Sell a $130 Call Spread near the Fair Value.
The utmost return on capital is 37% when ROKU rises somewhat.
This Jade Lizard uses $1,670 in buying power, and receives $620 in premium that’s larger than the width of the Call Spread. This fashion the Jade Lizard won’t lose money even when the stock price explodes in value.
If ROKU’s stock price stays between $75 and $130 before expiration, the trade has a maximum return of 37%.
Now you understand how you can use the Options Scanner to filter the perfect Jade Lizard entry points. Remember to make use of the scanner often to search out high-return barely bullish trades to sell, and make the most of a small rise in prices.