Jade Lizard Strategy: The 70-30 Rule — Full Breakdown & Transcript

[00:02] number four here. Um, a Jade Lizard supposedly has no upside risk as long as is the real risk actually hiding in? When does the setup make more sense than just selling a strangle? >> So, the real risk is the same risk to

[00:15] the downside in a strangle. A Jade Lizard has one naked option and it is a naked put. It is a naked short put. So, if you understand selling a put, selling an out-of-the-money put, that is where your risk is. You would be if the stock

[00:28] drops, you would come in long 100 shares of stock or understand that you can set roll that put. So, it truly is selling a put with an inflated volatility. Think you're selling the 100 put and you can get $2 for it. And then you're adding on

[00:43] maybe a So, you're getting I'm sorry, getting $4 for it. Then you're adding on you were essentially selling that put with an inflated volatility. If you can't lose to the upside, if you cover that. So, when does it make more sense

[00:56] than just selling a strangle? I think in products it 95% of the time. But, when you think about it in products that have already been beaten down, that are already at the

[01:10] bottom of their range, I've been hurt on a rubber band back up, right? I have been. It's been It's happened to me time and time again. Some of my major losses were coming from rubber banding up products that I had sold strangles in.

[01:23] Because you can't defend to the upside when the volatility gets sucked out. It's very challenging to, right? Uh, where when something goes down, the vol pops, you can sell premium against it or roll and take additional credits. So, I

[01:37] think it it the it makes sense when you get yourself far enough away where you you have a little bit of room, so it can run up a little bit. And I think that setup makes a lot more sense than a strangle on a product that has been

[01:50] you don't lose any money. both tails. The Jade Lizard is, um, you know, effectively saying I don't want to uh, I don't want to be short the upside tail, but they're still rich

[02:02] enough puts you in this market that I want to get short that put. And so, >> And the person like literally we created the Jade Lizard and I know you can put it in the platform. We say Jade Lizard and then it puts it in for you. A true

[02:14] Jade Lizard A true Jade Lizard is a third of the width of the strikes on the So, like just I'm just going to put it in dollar wide terms. A true Jade Lizard would be 30 cents on a call spread and 70 cents on a put. Right? So, then you

[02:27] can extrapolate that out for a $5 wide or a $10 wide or a $20 wide, however we want to set it up. What you truly want to get as far away as you can and get 30 equivalent, whatever if you're in a larger product, and 70 cents on a put.

[02:41] So, the they had run study after study after study about that. Where that that truly will get your distance as far away as you want or far away as you can if it's a true Jade Lizard. 70 cents on a put or 70%

[02:55] and 30%. And that's how it should be set up. Lizard if you've covered your call spread. throw a call spread right at the money and then sell a put down there. That's a

[03:10] That's a bearish trade. Right? Because we need it to be down in order to go in there. So, by the sense of the word, the Jade Lizard was created to be a third of the width on the call spread and 70% of the call

[03:23] the money as you can. you've always emphasized because when people stumble along, this is a little right? It's not just simply selling a put vertical. Um

[03:36] discovered, you know, free money or that's just not the case here. You're short a naked put spread on one side of risk if it goes in one direction. And the market just uh What What is the

[03:50] Latin phrase "No prandium gratuitum"? There's no free lunch. The market >> So then you are taking risk. It just the Jade takes advantage of people knowing that you're going to be neutral to bullish.

[04:04] It takes advantage of faded theta and time decay. I'm not saying that I think would do some I would do a Jade Lizard day like today cuz if it rubber bands back up, you don't lose. You can take

[04:16] advantage of that volatile the the ball skew. But this is probably be more of a $5 wide, right? So if you Did you just put this in? >> Yeah, I'm putting it on the platform now. I I did I did a long Jade Lizard.

[04:28] Yes, so you see how it sets this up? I'm not a fan. So what you're trying to do if you delete the the delete the put for 1 second if you don't mind and do a $2 do yeah, $5 wide. You got to get at least a third, so bring it keep

[04:42] bringing it down till you get a third. >> $1.67. All right. So 320.

[05:03] want to get yourself away so it in a true Jade Lizard neutral to bullish and risk to the top side. Means you're getting yourself as far enough away so it's strangle ask from that perspective, right? It's strangle ask from that

[05:16] perspective. What you don't have you're eliminating your your gap up risk back to the upside. So that's usually the setup. I have a hard time putting a Jade Lizard on when something is at the top top top of its range. If it's come back

[05:29] Lizard over a strangle cuz I don't want to lose to the upside. Yeah, I mean here if I lost 30 cents, this is a good setup.