Meta Deep in Social Media Addiction Lawsuit as Options Traders Deploy 'Jade Lizard' Strategy

Meta Platforms (META-US) is deeply entangled in a social media addiction lawsuit, with its stock price down more than 30% from its one-year high. Over the past 12 months, the company has lost over $600 billion in market capitalization. Despite rising legal liabilities, some options traders are deploying the 'Jade Lizard' strategy, betting that Meta’s stock will not drop sharply before its earnings report and major trial results are released.

The case was jointly filed by attorneys general from 29 U.S. states and has now entered the opening statement phase in Oakland, California. Prosecutors allege that Meta deliberately designed product features on Facebook and Instagram to increase teen user engagement, leading to addiction and mental and physical health harm.

According to reports, in the most extreme scenario, Meta could theoretically face up to $1.4 trillion in damages. However, this figure is not a court-ordered amount, nor does it mean Meta will ultimately have to pay compensation on this scale.

In addition to the 29-state lawsuit, Meta faces over 3,000 individual injury cases consolidated into a federal multidistrict litigation (MDL) and approximately 1,300 claims from school districts. Reports also note Meta faces a nearly $1 billion judgment from New Mexico and a $6 million payout from a landmark case loss in Los Angeles.

Legal risks are clearly reflected in the stock’s performance. Meta’s market cap has shrunk by over $600 billion in the past year, and its share price has fallen more than 30% from its peak. However, the company’s revenue continues to grow at 28%, and its current P/E ratio is around 22x, creating an ongoing tug-of-war between solid fundamentals and legal exposure.

Under these conditions, some traders are focusing on the 'Jade Lizard' strategy expiring on September 25. This options combination typically involves selling an out-of-the-money put and pairing it with a bearish put spread to collect premium income, suitable for investors expecting the stock price to remain range-bound in the short term.

Traders chose the September 25 expiry primarily to avoid Meta’s third-quarter earnings, expected in late October. Additionally, the trial is expected to last 6 to 8 weeks, meaning these options could expire before a major ruling is issued.

In other words, this trade is not a bet that Meta will definitely win the lawsuit, but rather that the stock won’t crash before earnings and trial results are announced. If Meta’s stock remains flat, rises slightly, or falls only moderately, traders stand to keep some or all of the premium collected.

However, the 'Jade Lizard' does not eliminate downside risk. Since the strategy includes selling a put, if major negative news emerges during the trial and Meta’s stock plunges, investors could still face significant losses.