A Jade Lizard is a specific options trading strategy designed to generate income, typically by selling an out-of-the-money call option, an out-of-the-money put option, and buying a further out-of-the-money put option for protection. In crypto institutional options trading, this strategy is applied to digital asset options to profit from expected moderate price movement or stability with defined risk.
Mechanism
The strategy involves three distinct legs: selling a call above the current price, selling a put below the current price, and buying a cheaper, even lower-strike put. This creates a credit spread where the premium received from selling the call and the closer put exceeds the cost of the protective put. The aim is to collect the net credit if the underlying crypto asset remains within the profitable range until expiration.
Methodology
Implementing a Jade Lizard strategy requires precise selection of strike prices and expiration dates, along with a view on the underlying crypto asset’s volatility and expected price range. The methodology centers on managing the defined risk profile, where maximum profit is the net credit received and maximum loss is capped below a certain price point, making it suitable for institutional traders seeking controlled income generation in crypto options markets.
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