Jade Lizard in PLTR

Key Concepts

• Volatility: The degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns.
• Jade Lizard: A bullish, high-probability options trading strategy that involves selling a call spread and selling a put.
• Call Spread: A strategy where a trader buys and sells call options of the same underlying asset but with different strike prices and expiration dates. In this case, it's a bear call spread (selling a higher strike call and buying a lower strike call) to profit from a limited price increase or decrease.
• Put: An option contract that gives the owner the right, but not the obligation, to sell an underlying asset at a specified price on or before a certain date.
• Delta: A measure of how much an option's price is expected to change for a $1 change in the underlying asset's price.
• Pop (Probability of Profit): The likelihood that an options trade will be profitable at expiration.
• Buying Power: The amount of capital required to open and maintain an options position.
• Break-even Point: The price at which an options trade will neither make nor lose money at expiration.
• IVX (Implied Volatility Index): A measure of the expected volatility of the S&P 500 index over the next 30 days.
• Tasty Trade: A brokerage firm mentioned as a platform for trading.

Market Overview and Volatility

The market is experiencing widespread volatility, with significant downturns observed across various indices. The S&P 500, for instance, has fallen by 100 handles, reaching its lowest level since early October, and prior to that, since September. This heightened volatility is a key factor influencing trading strategies.

Palantir (PLTR) Trade Analysis

The discussion focuses on a specific trade involving Palantir (PLTR), a "high-flyer" stock that has experienced a significant sell-off.

• Stock Performance: PLTR has dropped from $26 to $16.50, currently trading around $16.70. Its "Ivy rank" is 29, indicating it's moving towards the middle of its range.
• Trade Strategy: The Jade Lizard
  • Objective: To implement a bullish, high-probability trade that capitalizes on volatility and price movement.
  • Components:
    1. Sell a Call Spread: This is a bearish component on the upside, designed to profit if the stock stays below a certain level.
       • Strikes: 75 and 80.
       • Rationale for Strike Selection: The goal is to collect approximately one-third the width of the strikes as credit. The current trade is slightly richer than this due to the stock's lower price when the trade was initiated.
    2. Sell a Put: This is the primary bullish component, generating delta for the overall trade.
       • Strike: 140.
       • Rationale for Strike Selection: This put is chosen to capture the majority of the trade's delta.
  • Execution Details:
    • Expiration: January expiration (59 days) is chosen over December (31 days).
    • Reasoning for Expiration Choice: The optimal time frame for this strategy is around 45 days. December options have very tight spreads and high open interest, indicating liquidity, but the time frame is too short. January options have wider spreads (80 cents to nearly a dollar) with low open interest, making them less ideal. The speaker prefers January to allow for the typical two-to-three-week holding period for these strategies, with an intention to exit around 21 days. This leaves only 10 days in the December spread if that were chosen, which is too short.
    • Credit Received: $7.55 per share.
    • Delta: Approximately 15 delta on the overall trade.
    • Break-even Point: Under $135. This is a significant advantage as Palantir has not traded below $135 since July.
    • Probability of Profit (Pop): 80%.
    • Buying Power:
      • Approximately a couple of hundred dollars in a margin account.
      • A couple of thousand dollars in a portfolio margin account.
      • A couple of thousand dollars in a regular margin account.
  • Standalone Put Trade: Selling the 140 put as a standalone trade would have an 80% pop. Adding the call spread increases the credit received by approximately $2.35, bringing the total credit to $7.55.

Trade Management and Risk

• Upside Risk: The trade has no upside risk. If Palantir reaches $200 at expiration, the 75-80 call spread will be worth $5, and the 140 put will expire worthless. The profit in this scenario would be $2.55 ($7.55 credit - $5 cost of call spread), on a relatively small amount of buying power.
• Patience and Market Conditions: The speaker advises patience and not chasing trades, especially given the current weak market conditions. If this specific trade was missed, other long delta opportunities might exist.
• Trade Replication: The video mentions a feature on the "follow pages" where users can see trades before they are executed and even duplicate them by clicking a button. This allows for exact replication of the Palantir trade, which was executed when the stock was at $166. The pop for that trade was 77%, and the credit received was $7.55.

Volatility Indicators

• 5-Day Change in IVX: The speaker looks at the 5-day change in the IVX (Implied Volatility Index). It's noted that volatility has increased across many stocks in the last five days due to the market's downward trend.

Brokerage Recommendation

• Tasty Trade: The speaker recommends opening, moving, or transferring accounts to Tasty Trade, described as the "number one brokerage firm in the galaxy." They also mention referral programs and the goal of keeping content free through platforms like Tasty Live.

Conclusion

The video details a specific options trading strategy, the Jade Lizard, applied to Palantir (PLTR) amidst a volatile market. The strategy aims for high probability of profit by selling a call spread and a put, leveraging the stock's recent decline and the current market conditions. Key considerations include optimal expiration dates, strike selection for credit collection, and managing buying power. The speaker emphasizes learning the strategy and provides a mechanism for replicating trades on the Tasty Trade platform. The overall message highlights capitalizing on volatility with defined-risk, high-probability strategies.