Tony Battista Just Made a 76% Probability Trade on GE. Zero Upside Risk, $11 Credit.

Key Concepts

• Jade Lizard: An options strategy consisting of a short out-of-the-money (OTM) put and a short OTM call vertical spread. It is designed to be neutral-to-bullish with no upside risk.
• IV Rank (Implied Volatility Rank): A metric used to determine if current implied volatility is high or low relative to the past year.
• Delta: A measure of an option's price sensitivity to changes in the underlying asset's price.
• Theta Decay: The rate at which the value of an option declines as it approaches expiration.
• P50 (Probability of 50% Profit): The statistical likelihood of a trade reaching 50% of its maximum potential profit.
• Buying Power Effect: The amount of capital required by the brokerage to maintain a specific position.

Market Context and Strategy Selection

The speaker observes a highly resilient market, with the E-mini S&P 500 and Nasdaq reaching new highs. Rather than chasing the rally, the speaker identifies General Electric (GE) as a contrarian play. GE is noted for having a negative 0.77 correlation to the broader market and has recently underperformed, trading near $2.80. With an IV Rank of 58, the stock offers sufficient volatility to justify an options-based strategy.

The Jade Lizard Methodology

The speaker employs a "Jade Lizard" strategy to capitalize on high probability and theta decay while managing directional risk.

Step-by-Step Execution:

1. The Call Spread: Sell a $10-wide call vertical spread (290/300 strikes). The goal is to collect a credit equal to approximately 1/3 the width of the strikes (aiming for ~$3.30). This provides a 65% probability of profit (POP).
2. The Put Leg: To shift the trade from short delta to long delta, sell a 30-delta put (760 strike). This increases the total credit collected to approximately $11.10.
3. Risk Management: The combination of these legs results in a total credit of $1,110. The trade has no upside risk (the call spread is covered by the credit) and a downside break-even point of $2.50.

Key Metrics and Performance Expectations

• Probability of Profit (POP): The addition of the put leg increases the overall POP from 65% to 76%.
• Theta Decay: The trade generates approximately $13 in daily theta decay.
• Delta Positioning: The strategy targets a net long delta of 20–25 to align with the expectation that GE will catch a "bid" if the broader market takes a breather.
• Capital Requirement: The buying power effect for this position is $4,300.

Strategic Rationale

• Inverse Correlation: The trade is predicated on the belief that GE’s negative correlation to the S&P 500 will lead to a recovery in the stock price if the market pulls back.
• Pricing Discipline: The speaker warns that GE’s options markets can be "wide" (large bid-ask spreads). Traders are advised to be patient with price discovery and avoid aggressive market orders.
• Profit Target: The objective is modest—to capture $1–$2 of profit rather than holding the position until expiration.

Notable Quotes

• "I'm going to go with a high probability trade here. I'm going to do it a little bit omnidirectional. I'm going to do a jade lizard."
• "I do the price discovery, so you don't have to." (Regarding the difficulty of navigating wide bid-ask spreads in GE options).

Conclusion

The Jade Lizard on GE is presented as a high-probability, defined-risk strategy suitable for traders looking to hedge against a potential market pullback. By leveraging high IV Rank and a negative correlation to the S&P 500, the trader aims to profit from theta decay and a potential mean reversion in GE, while maintaining a comfortable break-even point significantly below current price levels.