My Top 3 Defensive Options Strategies (For Beginners)

Defensive Options Strategies Explained (Beginner-Focused)

1) Broken Wing Butterfly (Put Version)

Core idea (vs. standard butterfly)

• A broken wing butterfly is adjusted so there’s no risk to the upside; risk is primarily to the downside.
• Standard butterfly: symmetric—can lose if price moves too far up or down.
• Broken wing butterfly: built to remain profitable if the underlying rallies (“to the moon”).

Step-by-step construction (3 legs)

1. Buy 1 out-of-the-money (OTM) put (risk-defining long put)
2. Sell 2 OTM short puts (these are further OTM than the long put)
3. Buy 1 additional OTM put even further OTM than the short puts
   • This defines the payoff shape and caps risk.

• The long put defines max loss: if the underlying drops past the long-put strike (example cited: ~165), losses are capped.

P&L / payoff characteristics (as described)

• High win rate: presenter claims ~90%+ with proper construction.
• Omnidirectional-ish profitability:
  • Profit if price stays near current, or even moves up (minimum profit zone comes from premium received).
  • Profit continues until hitting the lower break-even.
• Profit zones:
  • Minimum profit = net credit from selling premium.
  • “Tent” zone = potential to approach max profit if price lands near the favorable area.
• Loss behavior:
  • Losses start gradually beyond the lower area (not instant max loss).
  • Max loss is capped at the long put strike level.

Risk comparison vs. put ratio spread

• If you remove the risk-defining long put, the structure becomes a put ratio spread with undefined risk (it could keep losing if the underlying goes to zero).
• The broken wing butterfly uses the extra long put to cap downside risk.

Rule-of-thumb framing (presenter’s “combination of” view)

• Treat it as:
  • a put credit spread (brings in credit) + financing
  • plus a put debit spread (cost)
• Result: net positive credit → minimum profit even if the underlying rises.

Illustrative example numbers:

• Sell put credit spread: ~$2.00
• Buy put debit spread: ~$1.50
• Net leftover credit: ~+$0.50

Assets / tickers mentioned

• No specific underlying ticker was provided for the broken wing butterfly examples.

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2) Condors (Put Condor and Call Condor) vs. Credit Spreads

Condor structure

• Put condor (more bearish): combines
  • put credit spread (premium collected)
  • embedded put debit spread (limits/adjusts risk)
• Call condor (more bullish): opposite orientation
  • call credit spread financing a call debit spread

Example numbers for put condor financing (illustrative)

• Sold put credit spread: $1.37
• Bought put debit spread: $1.00 + $0.07 = $1.07
• Resulting net credit (“spillover”) = $0.37

Claim (as described):

• Even if direction is “wrong” (market goes up too much), the trade can still stay profitable because of the structure’s net credit—i.e., “no loss to the upside” (within the intended design).

Why use a condor vs. a simple credit spread (presenter’s comparisons)

Compared at similar max risk and similar short strike:

• Win rate: slightly higher for condor: about +2%
• Harder to hit max loss: long leg placed further out (example: $524 vs $521)
• Higher max profit:
  • Put spread max profit: about $106
  • Put condor max profit: described as “much higher”
• Risk-to-reward described:
  • Put condor: roughly ~1:1 (max profit / max loss)
  • Put spread: described as worse, roughly risk ~$500 to make ~$100

Iron condor comparison (general points)

• Iron condor has a wider max profit zone, but (per presenter):
  • lower win rate when compared on similar risk basis
  • less favorable risk-to-reward than put condor
• Presenter references tastytrade research using SPY for iron condor statistics.

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3) Iron Condor Performance, Limitations, and “Jade Iron Condor” Modification

Presented research source/summary

• Source: tastytrade
• Underlying: SPY
• Main takeaways:
  • Iron condors can be net profitable long-term, especially with wider spreads
    • Tighter spreads (e.g., $1–$2 wide) are harder to stay net profitable
    • Wider spreads (e.g., $5–$20 wide) show better long-term behavior
  • Even with long-term profitability, equity curves can show multi-year sideways periods and later drawdowns (examples described around 2011–2017).

Key limitation emphasized

Because iron condors are tested on both sides:

• In strong bear moves: losses occur on the put side
• In strong bull moves: losses occur on the call side
• With market drift upward (like SPY), the call-side situation occurs more often.

Win rate and losing-streak risk

• Iron condor win rate: ~60%+ (from tastytrade tables; delta/DTE details not fully specified in the subtitles)
• Biggest psychological risk: long losing streaks despite >50% win rate.
  • Example described for ~65% win rate:
    • Probability of 5 consecutive losses in a 100-trade sequence: about ~40%
  • Probability of 3 consecutive losses in a 100-trade sequence: about ~99%

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“Jade Iron Condor” Concept (Presenter-Created)

Definition

• A defined-risk version of the Jade Lizard.
• Goal: improve performance by designing it so there’s no (or minimal) risk to the upside (risk mostly to the downside).
• Presenter’s cited performance (tastytrade-based Jade Lizard on SPY):
  • Win rate range: ~81% to 86%
  • Losing streak probabilities drop sharply:
    • With ~85% win rate:
      • Chance of 5 straight losses over 100 trades: about ~1%
      • Chance of 3 straight losses: about ~28% (as stated)

Step-by-step construction (as described)

• Start with the standard iron condor put side (unchanged):

  • Short put around 16 delta
  • Long put about $10 out (example strikes: 579 to 569)

• Modify call side only to eliminate upside risk:

  • Choose short call around 30–35 delta (target range)
  • Due to strike interval constraints, presenter selects a higher delta short call:
    • Example short call: ~39 delta (narrative example strikes: 635–636)
  • Constraint emphasized:
    • To create no risk to upside, the net credit must exceed the call spread width.
  • In the attempted example, credit was insufficient at lower deltas, causing upside loss; the short call was moved to restore the “no upside risk” condition.

Outcome in P&L (as described)

• If price moves above the call spread:
  • the structure can still remain net profitable
  • because call-side losses are covered by the structure’s credit (“spillover”).

Time / exit timing mentioned

• Jade Lizard study outcomes referenced for:
  • holding to expiration, or
  • exiting at 21 DTE

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Key Instruments / Tickers Explicitly Mentioned

• SPY (SPDR S&P 500 ETF Trust)
  • Used in tastytrade studies and examples.
• SPX / mini SPX
  • Mentioned as an analogy for risk comparisons.
• No individual stock tickers were provided for the examples.

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Key Numbers Explicitly Mentioned

Broken wing butterfly

• Example long put risk level: ~165 (illustrative)
• Win rate claim: ~90% or 90%+
• Illustrative financing:
  • Credit spread: ~$2.00
  • Debit spread: ~$1.50
  • Net leftover: ~$0.50

Put condor example

• Sold put credit spread: $1.37
• Bought put debit spread: $1.07
• Net credit spillover: $0.37

Put spread vs. put condor comparison (illustrative)

• Max loss: ~$494 vs ~$489 (difference ~$5)
• Put spread max profit: ~$106
• Example long strike adjustment: $524 vs $521 (harder to hit max loss)

Iron condor research

• Win rate: ~60%+
• Losing streak probabilities (illustrative):
  • ~65% win rate: ~40% chance of 5 straight losses within 100 trades
  • ~99% chance of 3 straight losses within 100 trades

Jade iron condor / Jade lizard research (SPY)

• Win rate: ~81%–86%
• Losing streak probabilities:
  • With ~85% win rate: ~1% chance of 5 straight losses within 100 trades
  • 3 straight losses: ~28%
• Exit reference: 21 DTE

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Methodology / Frameworks Extracted

Broken Wing Butterfly (put) construction

• Buy 1 OTM put (risk cap)
• Sell 2 OTM short puts
• Buy 1 more OTM put further out
• Ensure the long put defines max loss

Condor approach (put condor / call condor)

• Use a credit spread to finance an embedded debit spread
• Design widths/premiums so directionality mismatch doesn’t necessarily force a loss (within the intended structure)

Jade Iron Condor construction (defined-risk, modified upside)

• Keep put side like a standard iron condor:
  • short ~16 delta
  • long put ~$10 out
• Modify call side so there’s no/limited upside risk
• Constraint: net credit should exceed call spread width
• Adjust short call delta if strike intervals force a wider call debit width than the available credit

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Disclosures / Disclaimers

• The subtitles include a subscription/marketing callout and an offer to download a blueprint.
• No explicit “not financial advice” disclaimer appears in the provided subtitles.

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Presenters / Sources Mentioned

• Davis (referenced repeatedly)
• tastytrade team (cited for statistical studies on iron condors and Jade Lizard–related comparisons)
• Optionswithdavis.com
  • Referenced for an “Options Income Blueprint” offer