Hello friends, I hope you are doing good. I’m trying to share one option strategy every week. Today I’m sharing the Reverse Jade Lizard option strategy in TCS.
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?
- 1 What is Reverse Jade Lizard Option Strategy?
- 2 Looking for the Best strategy for Bank Nifty Future?
- 3 Options Strategies – A Mentorship Program
What is Reverse Jade Lizard Option Strategy?
This option 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 Reverse Jade Lizard Strategy. Look at the payoff chart:
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.
Let us take an example of TCS to understand step by step process I’m following to initiate this strategy.
Steps to follow for the Reverse Jade Lizard option strategy
The first step to initiate the Reverse Jade Lizard option strategy is: Find a stock which is trade in a range only. You can see after made a high of 3981.75, TCS is trading in a range of 3981 – 3420. So TCS 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. TCS IVP (Implied Volatility percentile) is 92. Means 92% of times TCS IV was trading below the current IV in the last one year (52 Weeks). So high probability that Its IV will drop in the coming sessions, which will give a positive impact on our credit spread.
Open Interest analysis for TCS
Now look at Open interest data, Highest OI stands at 3600 PE and 3800 CE followed by 3700 PE & 3900 CE. So based on the OI data: 3700 & 3600 can be the support levels where 3800 & 3900 are acting as the resistance levels. So we can use these levels as 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 TCS
Based on the range we find in TCS, We are selling 3700 PE & 4000 CE and to manage downside risk we are buying 3600 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 TCS is approaching toward your sold 4000 Call option.
Once you find that script is approaching towards your sold call strike means 4000, you can buy 4040 CE to lock your unlimited upside loss. Now when you have to do this adjustment? only if you find TCS above 3920.
You can join our Options Strategies – A Mentorship program to learn some these adjustments in a practical way.
I hope my articles are helping in your profitable trading. If you have any feedback or suggestions please type in the comment box. Your feedback will help me to do something better in the future.
Please type your queries related to this Reverse Jade Lizard option strategy in the comment box. I will try to answer all your queries.
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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.