← Strategy LabLesson 47 · 4:10
Reverse jade lizard
Summary
A reverse jade lizard sells a call above the price and a put spread below it, collecting more than the put spread is wide, so a fall can never lose. In the XYZ example you collect $185: you keep all of it from $95 to $105, keep $85 below $94, and break even at $106.85. On the right the sold call has nothing behind it, so the loss on a rise has no limit: at $150 you would lose $4,315.
Key terms
- reverse jade lizard
- A sold call above the price plus a sold put spread below it, collecting more than the put spread is wide so a fall can't lose.
- twisted sister
- Another name for the reverse jade lizard.
- sold call
- put spread
- Buying one put and selling a cheaper one further down, which caps both the cost and the payout at a floor.
- 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. XYZ ends at $110 on the last day. What is your result?
2. XYZ ends at $90 on the last day. What is your result?
3. How does the reverse jade lizard differ from the jade lizard?
4. Where is the reverse jade lizard's break-even?
5. Why is the risk on the way up bigger than the jade lizard's risk on the way down?
Finished the video and the quiz? .