JADE LIZARD
Overview
Sell an OTM put and a bear call spread (sell one OTM call, buy a higher-strike call) for a combined credit larger than the call spread width. The structure has no upside risk above the long call strike — only downside risk below the short put. A neutral to slightly bullish premium collection play.
What it does
The Jade Lizard is a sophisticated neutral trade combining a short OTM put with a bear call spread. The key design rule: collect a total credit greater than the call spread width. When this is achieved, there is literally no risk above the short call strike — the call spread can only lose up to its width, but you've already collected more credit than that width. The only risk is downside: the short put can lose significantly if the stock falls.
Structure
sell 1 OTM put + sell 1 OTM call + buy 1 further OTM call
Setup
- 1.Sell 1 OTM Put.
- 2.Sell 1 OTM Call.
- 3.Buy 1 further OTM Call (the long call wing).
- 4.Total credit received must be > width of the call spread.
Max profit
Total credit received. Realized if the stock stays between the short put and short call strikes.
Max loss
Put Strike − Total Credit (downside only). No upside risk if the credit exceeds the call spread width.
Breakeven
Put Strike − Total Credit (on the downside).
When to use
When you're neutral to slightly bullish and want to collect premium with zero upside risk. Ideal in high-IV environments.
When to avoid
If the stock has significant downside risk — the short put creates substantial loss potential below the breakeven.
Example trade
Stock: SPY at $430 Sell 1 SPY $415 Put at $3.50 Sell 1 SPY $440 Call at $2.20 Buy 1 SPY $445 Call at $0.80 Net Credit: $4.90 ($490) Call spread width: $5.00 — credit ($4.90) does NOT exceed width here (just for illustration) For a valid Jade Lizard: Total credit > call spread width Example: Sell $415 Put at $4.00 + Sell $440/$445 call spread for $1.20 = $5.20 credit > $5.00 width ✓ Max Upside Risk: $0 (credit exceeds spread width) Downside risk: $415 − $5.20 = $409.80 breakeven
Common mistakes
- ×Entering without verifying credit > call spread width — this is the critical rule that eliminates upside risk.
- ×Using a wide call spread to collect more credit — wider spreads require much more credit to achieve no upside risk.
- ×Ignoring the tail risk on the short put — a severe market decline can create very large losses.
- ×Sizing too large — short puts in market downturns can create losses many times the initial premium.
- ×Confusing the structure with a short strangle — the call side here is a spread (defined), not a naked short call.
FAQ
Why is it called a 'Jade Lizard'?
The name comes from tastytrade — coined because the structure has no upside risk (like a lizard with a protective shell on top) but exposes the short put on the downside.
What is the ideal stock behavior for a Jade Lizard?
The stock stays between the short put strike and the short call strike, allowing all premium to decay. Slight upward drift above the short put is ideal.