Options Jive

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Managing Ratio Spreads and Lizards

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

In today’s Options Jive, Tom and Tony cover management techniques for strategies that have two different profit zones. The guys go over Ratio Spreads, Big Lizards, and Jade Lizards. We like to employ these strategies because of their high probability of success, but their various profit zones can be confusing.

We start off by using the put ratio spread to summarize how we like to manage profits in ratio spreads. The profit area surrounding the short put strike acts like a Straddle, and we manage it as such by waiting for 25% of the maximum profit. If the underlying market moves to the upside (or the downside for call ratio spreads), then we try to take the full credit on the trade.

Similar to the ratio spread, Big/Jade Lizards are managed like Straddles/Strangles when the stock price is near the short options’ strike price. And then we look to take the full difference between the credit and the width of the call spread when the stock moves to the upside.

Check out the segment above for more numbers and details around managing these more complicated strategies.

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