reverseJadeLizardPnL {jadeLizardOptions}

Calculates per share (or unit of the underlying) Profit and Loss (PnL) at expiration for Reverse Jade Lizard Options Trading Strategy and draws its Bar Plot displaying the PnL.

Description

Reverse Jade Lizard is also known as the Twisted Sister Strategy. A twisted sister is a slightly bearish (or neutral), undefined upside risk strategy. This strategy is the opposite of a jade lizard. To construct this strategy we would sell an OTM call, and sell an OTM put spread at the same time. Maximum profit is achieved if the stock price ends up between the short strikes at expiration. We have found that twisted sister under-performs in the long run when compared to jade lizard because jade lizard takes advantage of volatility skew (Tastytrade, n.d.).
Volatility skew refers to the pricing differential in equidistant OTM options. Prior to the crash of 1987, this skew was non-existent. This skew creates an environment where the puts generally trade richer than the calls, due to the fact that the velocity of a crash is much higher than that of a rally. Since the goal for both strategies is for the stock price to expire within the short strikes, our assumption is the same for both (Tastytrade, n.d.).
Due to volatility skew normally being downside, the opportunity to utilize the twisted sister rarely arises. The single best time to use the twisted sister is when volatility skew inverts, meaning calls are trading richer than puts. This normally happens in breakout stocks after a parabolic move to the upside (Tastytrade, n.d.).
Goals: This trade retains the premium collected when opened as long as both the short call and bull put spread remain OTM (Stultz, 2019)
Manage: If the price of the underlying security remains within a narrow range, let the options expire worthless. If a price rally or drop occurs that threatens the short call or the vertical bull put spread, close the vulnerable position and retain the safe position until it either expires worthless or can be closed for a reasonable profit (Stultz, 2019).
Profit: If it is an American option that can be closed before expiration then close the positions when this strategy achieves a profit of 30 percent or more (Stultz, 2019).
Loss: If it is an American option that can be closed before expiration the close the positions when a loss in premium value becomes 8 percent or less (Stultz, 2019).

Usage

reverseJadeLizardPnL(
  ST,
  XLL,
  XLU,
  XH,
  lpp,
  spp,
  scp,
  hl = 0.4,
  hu = 2.5,
  spot = spot,
  pl = pl,
  myData = myData,
  myTibble = myTibble,
  PnL = PnL
)

Arguments

ST

Spot Price at time T

XLL

Lower-low Strike Price or eXercise price for bought Put

XLU

Lower-upper Strike Price or eXercise price for shorted put

XH

Strike Price or eXercise price for shorted call

lpp

Long Put Premium

spp

Short Put Premium

scp

Short Call Premium

hl

lower bound value for setting lower-limit of x-axis displaying spot price.

hu

upper bound value for setting upper-limit of x-axis displaying spot price.

spot

Spot Price

pl

profit and loss column of the data frame

myData

Data frame

myTibble

tibble

PnL

Profit and Loss

Details

#'According to conceptual details given by Stultz (2019), a closed form solution is developed for Reverse Jade Lizard Strategy and applied to draw the Bar plot in the Plots tab. Further given examples are created, to compute per share Profit and Loss at expiration for Reverse Jade Lizard Strategy and to demonstrate the strategy through its graph in the Plots tab.

Value

graph of the strategy

Author(s)

MaheshP Kumar, [e-mail]

References

Stultz, R. A. (2019). The option strategy desk reference: an essential reference for option traders (First edition.). Business Expert Press.
Tastytrade. (n.d.). Twisted Sister. https://www.tastytrade.com/definitions/twisted-sister
Kumar M (2022).bearishTrader: Trading Strategies for Bearish Outlook. R package version1.0.2, <URL: https://CRAN.R-project.org/package=bearishTrader>.
R Graphics Cookbook. (n.d.). Coloring Negative and Positive Bars Differently. https://r-graphics.org/recipe-bar-graph-color-neg
Gross C, Ottolinger P (2016).ggThemeAssist: Add-in to Customize 'ggplot2' Themes. R package version 0.1.5, <URL: https://CRAN.R-project.org/package=ggThemeAssist>.

Examples

reverseJadeLizardPnL(15,11,14,17,3,8,1)
reverseJadeLizardPnL(46,42,47,50,5,9,3,hl=0.8,hu=1.65)
reverseJadeLizardPnL(410,395,405,420,11,20,4,hl=0.94,hu=1.12)