I’ve been doing a lot of positive theta trades, known as a “Jade Lizard”. A Jade Lizard consists of a long Call Out-of-The-Money (OTM); a short Call, again OTM, but closer to the current price of the stock; and an OTM naked put. The short call and put should be near the 1 Standard Devation (SD) point, perhaps a little closer to the price of the underlying to improve the Return on Capital (but reducing slightly the probability of profit or POP).
This gives a little more edge than an Iron Condor (IC). You are covered to the upside.
The Jade Lizard trade was coined by Liz and Jenny (LIZ & JNY) on Tastytrade.com
The rule, according to LIZ & JNY is to make sure you do these on a stock you’re willing to own. I would change that slightly, by saying, make sure you are willing to roll the put side if it goes against you until it is profitable again.
I prefer to manage each “side” separately. I’ll put a limit buy order for half of what I sold it for. So if the put is sold for $.60, I would put a closing order for $.30. Same on the call side, however, I sell the short vertical spread for half. So, if the put sold for $.40, I buy it back at $.20.
I will adjust the position if it goes against me. If the stock goes down, I may move the short call to the same stike price as the put. Likewise, I’ll move the short put up to the short strike on the call side.
If one side is challenged, I will often roll that side as long as it is profitable. If not, I usually take the stock (long or short) and sell covered options until it can be sold at the price I had it assigned.
This requires capital, but if you can do it, it ‘will’ be profitable in time, with some exceptions. Some stocks just never really recover from a down move. I have some inventory which just makes $.25 or so on covered calls, but never really goes back up. I try to avoid those now, but you never know. Yesterday’s darlings in the stock market can go into the toilet pretty easily.
Good luck Frank! Chris
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