TWISTED SISTER
Overview
The bearish mirror of the Jade Lizard. Sell an OTM call and a bull put spread (sell one OTM put, buy a lower-strike put) for a total credit exceeding the put spread width. No downside risk if structured correctly — only upside risk above the short call. Neutral to slightly bearish.
What it does
The Twisted Sister is the bearish inverse of the Jade Lizard. You combine a short OTM call with a bull put spread — and the design rule is reversed: collect a total credit exceeding the put spread width. When achieved, there is zero downside risk below the long put strike — only upside risk from the naked short call. Ideal when you're slightly bearish and want premium income with a defined floor on the downside.
Structure
sell 1 OTM call + sell 1 OTM put + buy 1 further OTM put
Setup
- 1.Sell 1 OTM Call.
- 2.Sell 1 OTM Put.
- 3.Buy 1 further OTM Put (the long put wing).
- 4.Total credit received must be > width of the put spread.
Max profit
Total credit received. Realized if the stock stays between the short call and short put strikes.
Max loss
Unlimited above the short call (upside only). No downside risk if the credit exceeds the put spread width.
Breakeven
Short Call Strike + Total Credit (on the upside).
When to use
When you're neutral to slightly bearish and want to eliminate downside risk while collecting premium.
When to avoid
If the stock has a strong bullish catalyst — the naked short call creates unlimited upside risk.
Example trade
Stock: SPY at $430 Sell 1 SPY $445 Call at $3.80 Sell 1 SPY $415 Put at $2.00 Buy 1 SPY $410 Put at $0.80 Net Credit: $5.00 Put spread width: $5.00 — credit must exceed width for valid structure For valid Twisted Sister: Sell $445 Call at $4.20 + Sell $415/$410 put spread for $1.20 = $5.40 credit > $5.00 width ✓ Max Downside Risk: $0 (credit exceeds spread width) Upside risk: $445 + $5.40 = $450.40 breakeven
Common mistakes
- ×Not verifying credit > put spread width — this is the critical rule that eliminates all downside risk.
- ×Using on stocks with strong bullish momentum — the naked short call faces unlimited upside risk.
- ×Treating this as a 'safe' strategy — the short call is uncapped and can cause catastrophic losses.
- ×Not having defined exit rules for the short call before entering.
- ×Confusing with an iron condor — one side here is a spread and the other is a naked short option.
FAQ
How is the Twisted Sister different from the Jade Lizard?
They're inverses. Jade Lizard eliminates upside risk (short put + call spread); Twisted Sister eliminates downside risk (short call + put spread). Both require credit > spread width on the defined-risk side.
What market condition is perfect for a Twisted Sister?
After a strong rally with IV elevated — the short call captures inflated premium and the stock is unlikely to continue rising. A slight pullback maximizes the trade.