What is a Jade Lizard?
Sell 1 OTM Put
Generates premium and creates downside stock-purchase obligation.
Sell Call Spread
Sell a lower-strike call and buy a higher-strike call to cap upside risk.
Mental model: “Collect premium from both sides, but cap the upside risk with a long call.”
Core structure
| Leg | Action | Example Strike |
|---|---|---|
| 1 | Sell to Open Put | $90 Put |
| 2 | Sell to Open Call | $105 Call |
| 3 | Buy to Open Call | $110 Call |
All options use the same expiration.
When to use it
| Situation | Fit? | Why |
|---|---|---|
| Neutral to moderately bullish | Good fit | You want the stock to stay above the short put and ideally below the short call. |
| Want premium income | Good fit | You collect from the short put and short call. |
| Want to avoid unlimited upside risk | Good fit | The long call caps the call-side risk. |
| Expect a sharp decline | Poor fit | The naked short put creates substantial downside risk. |
| Want fully defined risk on both sides | Poor fit | The downside remains large unless another long put is added. |
Worked example
Assume a stock trades near $100.
| Leg | Strike | Premium |
|---|---|---|
| Sell Put | $90 | Receive $2.50 = +$250 |
| Sell Call | $105 | Receive $3.50 = +$350 |
| Buy Call | $110 | Pay $1.00 = -$100 |
Total Credit = $2.50 + $3.50 - $1.00 = $5.00/share
Total Credit = $500
The key Jade Lizard rule
The call-spread width is:
$110 - $105 = $5
The total credit is also:
$5.00/share
If Total Credit ≥ Call-Spread Width, there is no upside loss at expiration.
Maximum profit
Maximum profit is the total premium received if the stock finishes between the short put and short call.
Maximum Profit = Total Credit = $500
Best expiration zone in this example: between $90 and $105.
Lower break-even
Lower Break-even = Short Put Strike - Total Credit
Lower Break-even = $90 - $5 = $85
Below $85, losses grow as the stock continues falling.
What happens on the upside?
Above $105, the short call begins losing money. But the long $110 call caps the loss on that side.
Maximum Call-Spread Loss = ($110 - $105) × 100 = $500
Because the trade collected $500 total credit:
Upside Net Result at or above $110 = $500 Credit - $500 Call Spread Loss = $0
So in this example, there is no upside loss at expiration.
What happens at expiration?
| Stock Price | Approximate Outcome |
|---|---|
| $70 | Large loss from short put |
| $85 | Lower break-even |
| $90 | Near max profit |
| $100 | +$500 max profit |
| $105 | +$500 max profit |
| $108 | Partial profit |
| $110 or higher | Approximately $0 in this example |
The biggest risk: downside
The short put is not protected by a long put.
If the stock collapses, the Jade Lizard can lose heavily because you may be obligated to buy 100 shares at the short-put strike.
If the stock fell to $0 in this example:
Approximate Put-Side Loss = ($90 - $5 Credit) × 100 = $8,500
Jade Lizard vs. Short Strangle
| Feature | Jade Lizard | Short Strangle |
|---|---|---|
| Short put | Yes | Yes |
| Short call | Yes | Yes |
| Long protective call | Yes | No |
| Upside risk | Defined | Undefined |
| Downside risk | Large | Large |
Jade Lizard vs. Iron Condor
| Feature | Jade Lizard | Iron Condor |
|---|---|---|
| Protective call | Yes | Yes |
| Protective put | No | Yes |
| Upside risk | Defined | Defined |
| Downside risk | Large | Defined |
| Credit potential | Usually higher | Usually lower |
An Iron Condor is the more fully defined-risk version because it adds a protective long put.
Why traders use it
- Collect premium from both sides.
- Remove unlimited upside risk found in a Short Strangle.
- Potentially keep a large credit if the stock stays in a broad range.
- Express a neutral-to-bullish outlook.
Assignment risk
Short Put
Can be assigned, requiring purchase of 100 shares at the put strike.
Short Call
Can be assigned, though the long call provides upside protection.
Assignment can happen before expiration, so both short options need monitoring.
Pros and cons
Pros
- Large premium potential.
- Defined upside risk.
- Can be structured with no upside loss.
- Time decay often helps.
- More controlled than a naked Short Strangle.
Cons
- Large downside risk remains.
- Short-put assignment risk.
- Requires meaningful buying power.
- Three legs increase complexity.
- A sharp stock decline can overwhelm collected premium.
How to close it
Close as one three-leg order when possible.
Close: Buy to Close the short put + Buy to Close the short call + Sell to Close the long call.
Profit = Opening Credit - Cost to Close
Common mistakes
- Assuming “no upside risk” means the entire trade is low risk.
- Ignoring the large downside exposure from the naked put.
- Failing to verify that credit is at least equal to the call-spread width.
- Using the strategy on a stock you would not want to own.
- Ignoring earnings or gap risk.
- Not planning for put assignment.
Beginner checklist
| Check | Question |
|---|---|
| ☐ Market view | Am I neutral to moderately bullish? |
| ☐ Put strike | Would I be comfortable buying 100 shares here? |
| ☐ Call width | What is the width of the bear call spread? |
| ☐ Total credit | Is it at least as large as the call-spread width? |
| ☐ Lower break-even | How far can the stock fall before I lose money? |
| ☐ Assignment | Can I handle short-put assignment? |
| ☐ Buying power | Can my account support the downside obligation? |
| ☐ Alternative | Would an Iron Condor better match my risk tolerance? |
Key takeaway
Jade Lizard = Sell OTM Put + Sell Call Spread
Use it when you want premium income with a neutral-to-bullish outlook and want to eliminate unlimited upside risk.
The central trade-off is: defined upside risk, but substantial downside exposure from the short put.