← Strategy LabLesson 46 · 4:13
Jade lizard
Summary
A jade lizard sells a put below the price and a call spread above it, collecting more than the call spread is wide, so a rise can never lose. In the XYZ example you collect $167: you keep all of it from $95 to $105, keep $67 above $106, and break even at $93.33. On the left the sold put has nothing behind it, so a fall to zero would lose $9,333.
Key terms
- jade lizard
- A sold put below the price plus a sold call spread above it, collecting more than the call spread is wide so a rise can't lose.
- jade lizard rule
- The credit collected must be larger than the width of the call spread, which removes the risk on the way up.
- sold put
- call spread
- wing
- An option away from the money on one side, such as the 25 delta put or the 25 delta call.
- net credit
- When a pair of trades brings cash in overall.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
- T plus zero line
- The blue line on the chart showing your result today, if you closed the trade right now.
- time value
- The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.
- margin
- Money your broker holds against what a sold position could lose.
Check yourself
Answer each question to see why the right answer is right.
1. What is the jade lizard rule?
2. XYZ ends at $110 on the last day. What is your result?
3. XYZ ends at $90 on the last day. What is your result?
4. Where is the jade lizard's break-even?
5. With XYZ sitting at $95 and nothing else changing, what does time do to the position?
Finished the video and the quiz? .