Hello friends, I hope you are doing good. I’m trying to share one options strategy every week. Today I’m sharing the Reverse Jade Lizard option strategy in ITC.
In this post, I’m sharing What is Reverse Jade Lizard Option strategy? How can we deploy this? and what should be our adjustments in this Option strategy?
What is Reverse Jade Lizard Option Strategy?
This options strategy has three legs. We are selling deep OTM Call + Put and hedging our downside risk with one bought Put. All legs have equal lot sizes. This strategy is Reverse Jade Lizard Strategy. Look at the payoff chart:
This strategy is a credit strategy and is always good when we are expecting a range-bound activity in the script. As you can see it has an Unlimited risk on the upside, so this strategy is only suitable for Advanced option traders who can manage it properly.
Let us take the example of ITC to understand step by step process I’m following to initiate this strategy.
Steps to follow for the Reverse Jade Lizard option strategy
To initiate the Reverse Jade Lizard option strategy is: Find a stock that is trading in a range with a rangebound trend. You can see ITC is trading in a range with a neutral trend. 220 – 245 is the range we can see on the charts. So ITC is a good script based on the first parameter.
Open Interest analysis for ITC
Now look at Open interest data; Highest OI stands at 220 PE and 240 CE. So this can be our range. The almost same range we are getting on the charts. SO it’s our double confirmation that this range is valid based on current option chain data.
Reverse Jade Lizard option strategy in ITC
Based on the range we find in ITC, We are selling 230 PE & 255 CE and managing downside risk; we are buying 225 PE. Now you can see that we have a very low downside risk. But we have unlimited risk on Upside.
So to manage that risk you have to follow some adjustments if you find that ITC is approaching your sold 255 Call option.
Once you find that script is approaching your sold call strike means 255, you can buy 260 CE to lock your unlimited upside loss. You can bring your sold PUT to a higher level to collect some extra premium.
Now when you have to do this adjustment? only if you find ITC above 244.
You can join our Options Strategies – A Mentorship program to learn some these adjustments in a practical way.
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DISCLAIMER: – we are not a SEBI research analyst. Views posted here only for educational purposes. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders who are aware of the risk inherent in securities trading.