In this strategy workshop, Liz and Jenny explain the basics of a Jade Lizard strategy. Jade Lizards consist of a short Call Vertical and a Short Put!
You'll start by looking for a very liquid underlying that has high implied volatility rank (IV rank). Generally, we consider anything with an implied volatility rank of over 50% to be high. Additionally, this trade works well when there is volatility skew to the Put side. This means that Puts are trading more expensively than Calls at an equal distance away from the stock price!
To eliminate risk to the upside in this “bullishly neutral” play, we want to collect a credit that is larger than the width of the Call Spread!
When we employ Jade Lizards we're hoping the implied volatility rank will contract, and that the price of the underlying will stay between your two short strikes.
Typically, we will manage a Jade Lizard at 25-50% of max. profit!