3 Years of SPX Jade Lizard Data. The $30 Wide Put Spread Wins Every Time.

Key Concepts

• Jade Lizard: An options strategy combining a short put spread and a naked short call (or a wide call spread) to collect premium while eliminating upside risk.
• Expected Move (EM): The statistical range the market is expected to trade within over a specific timeframe, used here to determine strike placement.
• Credit Requirement: The rule that the total credit received must at least equal the width of the call spread to ensure the upside is fully covered.
• Delta/Probability of Success: The likelihood of the trade expiring out of the money; the study targets 65–70% win rates.
• Management Strategy: Closing trades at 25% of maximum profit, checked daily or every 10 minutes on expiration day.

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1. Strategy Overview and Objectives

The video analyzes the performance of short-term (7-day) SPX Jade Lizard trades over a 3-year period. The primary goal is to evaluate how different spread widths (put spread vs. call spread) affect profitability, win rates, and the ability to place strikes further out of the money (OTM).

• Core Mechanics: The strategy functions as a hybrid of an iron condor and an extra short put spread.
• Upside Protection: By collecting a credit equal to the width of the call spread, the trader eliminates upside risk, creating a "neutral-to-bullish" profile.

2. Methodology and Data Parameters

• Data Set: 3 years of SPX short-term options data.
• Trade Structure: 7-day duration.
• Combinations Tested:
  • $20-wide put spread / $5-wide call spread.
  • $20-wide put spread / $10-wide call spread.
  • $30-wide put spread / $10-wide call spread.
• Exit Criteria: Winners are closed at 25% of maximum profit. Monitoring occurs at the end of each trading day, and every 10 minutes on the day of expiration.

3. Key Findings and Performance Analysis

• Impact of Spread Width:
  • $30-wide put / $10-wide call: This configuration is identified as the most robust "traditional" Jade Lizard. It offers higher average P&L (up to $100) compared to narrower spreads.
  • $5-wide call spread: Requires less credit, allowing the trader to place strikes further OTM. This is better for conservative traders.
  • $10-wide call spread: Requires higher credit, forcing the trader to place strikes closer to "at the money," which increases risk but yields higher average P&L.
• Strike Placement: The study found that once the short put strike is placed beyond the "expected move," it becomes difficult to collect enough credit to cover the width of a $10 call spread.
• Win Rates: The strategy consistently demonstrated high win rates, generally between 65% and 70%, which aligns with the presenters' target for mechanical trading.

4. Logical Connections and Trade-offs

• Risk vs. Reward: There is a direct correlation between the width of the put spread and the ability to move strikes further OTM. A wider put spread (e.g., $30) allows for a safer, further OTM placement while still meeting the credit requirement.
• Market Environment: The presenters note that the 3-year data set is skewed by a consistently bullish and volatile market, which is the "ideal" environment for this strategy.
• Capital Allocation: The primary constraint is the trader's risk tolerance and available capital. Wider spreads require more buying power and carry higher potential max loss, but they provide a higher probability of success and better P&L outcomes.

5. Notable Quotes

• "The key characteristic for the Jade Lizards are the distance out of the money and the width of the spreads."
• "If you're willing to put more risk on, you can actually move the spread towards like 1.25 the expected move... your P&L's get obviously a lot better."
• "Every combination we tested showed positive average P&L, but that doesn't mean all approaches are equal."

6. Synthesis and Conclusion

The Jade Lizard is a highly effective strategy for volatile, bullish markets. The "best" configuration depends on the trader's capital and risk appetite:

1. For higher P&L: Use a $30-wide put spread with a $10-wide call spread. This allows for strikes further OTM while maximizing credit.
2. For conservative approaches: Use a $5-wide call spread, which requires less credit and allows for more conservative strike placement.
3. Final Takeaway: The strategy's success is driven by the ability to collect premium on both sides while capping upside risk. Traders should prioritize finding the furthest OTM placement that still satisfies the credit requirement (collecting the width of the call spread).