One of the many beauties of options trading is the ability to make money on a rangebound stock. Shares of Meta Platforms are presenting that opportunity right now.
With its upside capped by litigation and much of the downside has already been priced in, it may make sense to try to capture some elevated options premium and sell both sides. The curiously named options strategy “jade lizard” — more on this in a second — collects a rich premium without the unlimited upside risk of a short strangle.
As opening statements began in Oakland today, where 29 state attorneys general accuse Meta of deliberately designing Facebook and Instagram to hook young users, META shares are off more than 30% from the highs of a year ago.
The headline figure, a theoretical worst case of $1.4 trillion in damages has been floated, although I think that number borders on the absurd, especially if one considers the inevitable appeal that would follow.
Behind that case sit more than 3,000 personal-injury suits in the federal MDL (multi-district litigation that combines similar lawsuits/related cases that seek to answer similar questions of fact), roughly 1,300 school-district claims, a nearly $1 billion New Mexico judgment, and a $6 million bellwether loss in Los Angeles. While virtually no one believes the trillion-dollar headline represents the real risk, nobody should expect a sustained rally through a seven-week trial either.
Much of the downside, arguably, has already been paid for. Meta is the worst-performing stock in the “Magnificent Seven” over the past 12 months, the market cap having fallen more than $600 billion so far. It is also acting as a boat anchor on the communications sector generally as it is the largest constituent. Granted some of that decline is probably also concerns about AI capex, but at about 22 times earnings with revenue still growing 28% a lot of anxiety is already baked in the price.
Enter the jade lizard.
In this strategy, you sell an out-of-the-money put and also sell an out-of-the-money call spread. Often this trade is structured such that the total premium collected exceeds the width of the call spread, eliminating upside risk entirely, although without a potential catalyst to drive shares sharply higher, a modest amount of upside risk would also be acceptable. Implied volatility is, unsurprisingly, slightly inflated by the lawsuit(s). The September 25th expiration captures some of that while avoiding the Q3 earnings report expected in late October and also falls short of the anticipated length of the trial of six to eight weeks.
If shares sit between the short strikes at expiration, YOU keep the full credit. A rally through the call spread risks less than 5% of the current stock price and the downside risk is that one purchases the stock at less than $480/share, another 12% lower than where the stock is currently trading and below the tariff tantrum lows of late April 2025. If the stock does fall to those levels, and one purchases the stock around $480 share, one could look to then collect premium against the resulting position by selling covered calls, or covered call spreads (a position we currently have in META).
