Hello Guys, I hope you are doing good. In this article, I’m sharing a Reverse Jade Lizard options strategy in UPL.
Reverse Jade Lizard options strategy is a three-legs option strategy with limited or no risk on the downside and an unlimited risk on the upside. This strategy is advisable for advanced traders only.
In this article, I’m trying to share why we are deploying this strategy in UPL and what could be the adjustments if the script goes against our view. Again I’m saying that this strategy is only advisable for an advanced trader who knows how to manage his risk well.
Reverse Jade Lizard Options 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 size.
This strategy is a credit strategy and 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.
Steps to follow for the Reverse Jade Lizard strategy
The first step to initiate the Reverse Jade Lizard optionS strategy is: Find a stock which is trade in a range only. You can see UPL is trading in a range. 600 to 550 is the range we can see on the charts. So UPL can be a good script based on the first parameter.
Second step: Because this is a net Credit strategy, so a stock with high IV is preferable. UPL IVP (Implied Volatility percentile) is 93.6. Means 93.6% of times UPL IV was trading below the current IV in the last one year (52 Weeks). So high probability that Its IV will drop incoming sessions, which will give a positive impact on our credit spread.
Open Interest analysis for UPL
Now look at Open interest data, Highest OI stands at 560 PE and 600 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 options strategy in UPL
Based on the range we find in UPL, We are selling 550 PE & 600 CE and to manage downside risk we are buying 540 PE. Now you can see that we don’t have any downside risk. But we have unlimited risk on Upside.
So to manage that risk you have to follow some adjustments if you find that UPL is approaching toward your sold 600 Call option.
Once you find that script is approaching towards your sold call strike means 600, you can buy 610 CE to lock your unlimited upside loss. Now when you have to do this adjustment? only if you find TCS above 590.
You can join our Options Strategies – A Mentorship program to learn some of these adjustments in a practical way.
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Options Strategies – A Mentorship Program
On the 1st of September 2019, We have launched a new mentorship program for Option strategies, in which we are discussing how can we deploy these strategies? What rules we should follow before taking a trade? and what should be our adjustments if the script is moving against your direction?
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.
8+ Years working as a derivative trader, Option Writer, Blogger, Trader by passion, Keen Follower of Indian share market