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Modified Jade Lizards

May 23, 2016

A Jade Lizard is a strategy named by LIZ and JNY. It is a Short Strangle with an added long further out-of-the-money (OTM) Call for upside protection. Another way though to look at the position is as a Short OTM Put and a Short OTM Vertical Call Spread. We can get a similar risk-profile by replacing the credit call spread with a at-the-money (ATM) debit put spread. The end result is similar but there are differences. Is there a benefit to using this Modified Jade Lizard?

Neither strategy has upside risk. A list of the pros and cons of both strategies were listed. The list showed that a Jade Lizard had greater upside profit potential and the Modified Jade Lizard had a greater probability of profit (POP) to the downside and a further out breakeven.

A table comparing the two strategies in the SPY (S&P 500 ETF) was displayed. The SPY was trading at $203.80 and the VIX was at 17. The example used options with 45 days to expiration (DTE). The table compared the positions, credit received, max profit, breakeven prices and the POP. Both strategies carry a positive Delta at order entry. The regular Jade Lizard can be profitable on both sides of the market while the “modified” Jade Lizard can make money only to the downside. An advantage of the “modified” Jade Lizard is that can also be used as a direction play for binary events such as earnings.

For more on Jade Lizards see:

Market Measures from March 7th, 2016: “Jade Lizard - Part 1”
Market Measures from March 9th, 2016: "Jade Lizard: Part 2”

Watch this segment of Options Jive Tom Sosnoff and Tony Battista for the important takeaways and a comparison of a Jade Lizard to a Modified Jade Lizard with a discussion of their differences and when each should be used.

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