Most Options Traders Use Iron Condors in This Market. Liz and Jenny Say The Jade Lizard Beats It.

Key Concepts

• Jade Lizard: An options strategy consisting of a naked put (or put spread) and a short call spread. It is designed to have no risk to the upside while defining risk to the downside.
• SPX (S&P 500 Index): The underlying asset used for the trade, noted for its high price, necessitating defined-risk strategies.
• DTE (Days to Expiration): The time remaining until an option contract expires; in this case, 45 days.
• Delta: A measure of an option's price sensitivity to changes in the price of the underlying asset.
• VIX (Volatility Index): A measure of market expectations of near-term volatility; used here to gauge if premiums are inflated.
• GTC (Good 'Til Canceled): An order type that remains active until the trade is filled or manually canceled.

---

1. Strategy Overview: The Jade Lizard

The Jade Lizard was developed by the presenters around 2012 (originally tested on Facebook/Meta) as a solution to the "pain" of losing on naked calls. By replacing the naked call with a short call spread, the trader eliminates upside risk.

• Core Philosophy: The strategy is "versatile" and acts as a safer alternative to an Iron Condor, specifically avoiding the losses often associated with the call spread side of an Iron Condor.
• Risk Profile: It offers no risk to the upside. If the underlying asset price rises, the trade remains profitable. Downside risk is defined by the width of the put spread.

2. Trade Execution and Parameters

The presenters executed a 45-day DTE Jade Lizard on the SPX. Their specific methodology for this trade included:

• Call Spread: $5 wide. The goal is to collect a credit that helps offset the put spread cost.
• Put Spread: $20 wide. This defines the downside risk.
• Target Credit: The goal is to collect approximately $5.00 in total credit.
• Strike Selection:
  • Call Side: 7525/7530 strikes (approx. 200 points above current trading price).
  • Put Side: 7020/7040 strikes (approx. 300 points below current trading price).
• Management: The trade is set with a 25% profit target (GTC order). If the market moves against the position (downward), the strategy involves rolling the position out in time and shifting the strikes lower to manage the risk.

3. Market Context and Rationale

• Volatility: The VIX was trading near 19, providing an "inflated volatility" environment, which is ideal for selling premium.
• Market Direction: Because the SPX had recently experienced a rally, the presenters noted that the current downside risk is more manageable. They emphasized that the Jade Lizard is particularly effective on days when the market is down, as it allows for better entry points.
• Capital Efficiency: Without defining the risk (using spreads), a naked position in SPX would require approximately $160,000 in capital. The Jade Lizard makes the trade accessible by capping the maximum loss at $1,500.

4. Notable Quotes

• "We got tired of losing on naked calls. We said, 'We're tired of losing on naked calls. We're going to start doing selling a naked put and a call spread so we don't have to lose on a naked call again.'" — Explaining the origin of the strategy.
• "There's no risk to the upside. So if we meander up, this trade will come off for a win." — Highlighting the primary advantage of the Jade Lizard.

5. Synthesis and Conclusion

The Jade Lizard is presented as a superior alternative to the Iron Condor for high-priced underlyings like the SPX, specifically because it removes the "pain" of upside risk. By utilizing a 45-day duration, the traders aim to capture time decay while maintaining a wide margin of safety. The strategy relies on disciplined strike selection—keeping the call spread narrow ($5) and the put spread wide ($20)—to ensure the trade remains capital-efficient and manageable. The presenters suggest that for those looking to master the construction of this trade, the "Liz and Jenny strategy series" on tastylive.com serves as the primary educational resource.