Hello friends, I hope you are doing good. I’m trying to share one option strategy every week. Today I’m sharing the Reverse Jade Lizard option strategy in TCS.
In this post, I’m sharing What is Reverse Jade Lizard Option strategy? How can we deploy this? and what should be our adjustments in this Option strategy?
What is Reverse Jade Lizard Option Strategy?
This option strategy has three legs. We are selling deep OTM Call + Put and hedging our downside risk with one bought Put. All legs have equal lot size. This strategy is Reverse Jade Lizard Strategy. Look at the payoff chart:
This strategy is a credit strategy and always good when we are expecting a range-bound activity in the script. As you can see it has an Unlimited risk on the upside, so this strategy is only suitable for Advanced option traders who can manage it properly.
Let us take an example of TCS to understand step by step process I’m following to initiate this strategy.
Steps to follow for the Reverse Jade Lizard option strategy
The first step to initiate the Reverse Jade Lizard option strategy is: Find a stock which is trade in a range only. You can see TCS is trading in a range. 2300 to 2100 is the range we can see on the charts. So TCS is a good script based on the first parameter.
Second step: Because this is a net Credit strategy, so a stock with high IV is preferable. TCS IVP (Implied Volatility percentile) is 87. Means 87% of times TCS IV was trading below the current IV in the last one year (52 Weeks). So high probability that Its IV will drop incoming sessions, which will give a positive impact on our credit spread.
Open Interest analysis for TCS
Now look at Open interest data, Highest OI stands at 2100 PE and 2300 CE. So this can be our range. The almost same range we are getting on the charts. SO it’s our double confirmation that this range is valid based on current option chain data.
Reverse Jade Lizard option strategy in TCS
Based on the range we find in TCS, We are selling 2100 PE & 2300 CE and to manage downside risk we are buying 2060 PE. Now you can see that we don’t have any downside risk. But we have unlimited risk on Upside.
So to manage that risk you have to follow some adjustments if you find that TCS is approaching toward your sold 2300 Call option.
Once you find that script is approaching towards your sold call strike means 2300, you can buy 2340 CE to lock your unlimited upside loss. Now when you have to do this adjustment? only if you find TCS above 2290.
You can join our Options Strategies – A Mentorship program to learn some these adjustments in a practical way.
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Much Check this also- A high probability options strategy in YESBANK, Option Buying vs options selling, Modified Condor Option Strategy in VEDL, Bull Call Ladder in ZEEL, Iron Condor in SBIN, Why People Lose Money & Nifty and Bank nifty index analysis with Option Strategy,
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Options Strategies – A Mentorship Program
On the 1st of September 2019, We have launched a new mentorship program for Option strategies, in which we are discussing how can we deploy these strategies? What rules we should follow before taking a trade? and what should be our adjustments if the script is moving against your direction?
DISCLAIMER: – we are not a SEBI research analyst. Views posted here only for educational purposes. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders who are aware of the risk inherent in securities trading.