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Sell one OTM put Sell OTM vertical call spread. This works best when volatility is high, which means picking the best possible underlying is essential for the strategy to work. The maximum profit is going to be made when the underlying price is in between the short strikes at expiration. The break even price is equal to: Strike of short put – credit received If a trader is extremely bullish on the underlying, notably if it has recently sold off, short puts or covered calls could be more profitable and more appropriate. As with all strategies, it comes down to a matter of timing, and of awareness of the interaction between an option combination and the underlying price movement. Options traders always face the dilemma of when to close a position. Closing too soon could mean lost profits and closing too late could mean ending up with a loss. The jade lizard can be closed by buying to close to set up a net debit that is lower than the original credit created by the position. Traders may want to set up a target. For example, netting out 50% of the original credit is an attractive return if it can be achieved. In highly volatile conditions, and with expiration approaching, this is not unrealistic. If the underlying moves through the short call spread, traders can roll the short put to increase the credit. However, this is not necessary because there is no upside risk, due to the offset within the spread (in comparison to the credit received). This approach – rolling forward – is a popular one for any trader working with short positions, either calls or puts. But it may involve risks not readily apparent. For example, it ties up capital and collateral, often for little overall benefit. In some cases, rolling forward can set up a reduced profit or even a loss, if the roll also involves changing the strike. If the short put is rolled forward, the trader should ensure that the added credit is worth the delay of expiration. If the underlying does sell off and begins to test the short put, then the short call spread can be rolled down to collect more credit without a corresponding upside risk. However, this multiple rolling activity delays expiration and may not add significantly to the potential profit, which is limited before the rolling begins. It could simply make more sense to accept the outcome with no upside risk, and avoid complex rolling strategies. Risks should not be ignored. Among these easily overlooked risks is the potential to lose by closing the entire position if the short put loss becomes too great. The jade lizard is not the only imaginatively named strategy. When it is set up in reverse, it is called a twisted sister. This is a combined bull vertical put spread, plus a short call. The spread is set up with the sale of a put at one strike and the purchase of another put at a lower strike; and then selling an OTM call at a strike above put of the put strikes. A disadvantage to the twisted sister is seen in comparisons to the jade lizard. The jade lizard is based on a higher net credit than the twisted sister when using the same strikes. And the uncovered call involved in the twisted sister presents unlimited upside risk. This is less desirable, of course, because traders are likely to prefer zero risk in the jade lizard, over unlimited risk in the twisted sister. And potential losses in the lade lizard are limited to the spread distance, compared to the great loss potential in the twisted sister. Another comparison is between the jade lizard and the big lizard strategies. The big lizard involves selling an ATM put and a call spread, with the short positions at the same strike. This sets up the greatest credit possible and is more like a straddle than a strangle like the jade lizard. However, traders are wise to compare risks and to analyze maximum profit potential versus the commitment of collateral and time involved. It is all too easy to become attracted to exotic positions, but to overlook the realistic limiting factors. Any strategy offering a limited maximum profit is worth careful study. The covered call is the best known example if this. Many covered calls traders do not realize that maximum profit is always limited to the premium received; and it is possible, with exercise, to lose money on the underlying that more than offsets the profit on the short call. The sale limitations deserve study for the jade lizard and twisted sister. If the elimination of risk is appealing and in exchange, a trader is willing to accept limited profits, these strategies could make sense. However, if the plan is to build wealth as quickly as possible, hedging strategies are not likely to accomplish this goal. Another limiting factor is the time required to monitor positions and identifying the best time to close positions to take profits (or to limit losses). It could turn out that the time demands of many options strategies are not worth relatively small profits. These are among the consequences of being attracted to exotically named strategies without thinking through the larger picture. No one wants to invest a lot of time monitoring open positions, only to realize a few dollars in profit or to end up at breakeven or a small loss. It is worthwhile to be aware of a broad range of strategies, including the jade lizard and twisted sister. However, they should be subjected to realistic analysis before entering a position, and before selecting strikes and expirations. Michael C. Thomsett is a widely published author with over 80 business and investing books, including the best-selling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs as well as on Seeking Alpha, LinkedIn, Twitter and Facebook.