- EQT Corp has high Implied Volatility (IV) making it a good option for Jade Lizard strategy.
- Jade Lizard strategy is a combination of shorting OTM calls & puts and buying ITM calls.
- EQT's IV is 49.9%, highest among the stocks analysed by Barchart, making it ideal for the strategy.
EQT Corp, a natural gas production firm, has a low multiple and a 1.58% yield. However, its relatively high implied volatility (IV) makes it an attractive option for investors using the Jade Lizard options strategy. The Jade Lizard strategy is a combination of shorting out-of-the-money call options and buying in-the-money call options, along with shorting out-of-the-money put options. This strategy reduces the risk of loss when the stock price rises above the call option strike price and increases income through the premiums received from the shorted options.
EQT's options have a high IV of 49.9%, ranking in the top 1% of all stocks analyzed by Barchart, making it a particularly good choice for this strategy. When compared to other energy stocks, EQT's high IV more than makes up for its lower-than-average dividend yield. For example, Chevron Corp has a dividend yield of 3.20%, but its options have a lower IV of 27.11%. Similarly, Exxon Mobil has a dividend yield of 3.22%, but its IV is also lower at 27.95%.
The high IV of EQT options is beneficial for shorting out-of-the-money (OTM) calls and puts. For instance, if an investor is considering the EQT call options for February 17, 2023, with a strike price of $38.00, which is 9.16% higher than the stock's price on January 13, 2023 of $34.81, the option is priced at 93 cents in the midprice. This means the covered call option investor can make an immediate yield of 2.67%, which, when annualized, can result in an income of 32%. Even if the high IV lasts for only 3 months, the investor can still make 8.0%
However, given EQT's high implied volatility, it is very possible the stock could rise more than 9.16% well above $38.00. This is a situation where the investor has to put up a large amount of money in a covered call, only to see the stock rise significantly over the strike price. To avoid this, an investor can use the Jade Lizard strategy. This strategy involves shorting the $38.00 call price and simultaneously buying the $39.00 call price.
This call spread provides an upside if the stock rises over $39.00 with the same expiration period. Additionally, the investor can short a relatively near-term out-of-the-money put option. This strategy eliminates the upside risk and provides income through the premiums received from the shorted options.