The jade lizard is a creative twist on the short strangle that eliminates risk on one side. If you like selling strangles but hate the unlimited upside risk, the jade lizard might be your answer.

What Is a Jade Lizard?

A jade lizard combines:

  • Sell 1 OTM put (short put)
  • Sell 1 OTM call spread (bear call spread)

    • The call spread replaces the naked short call from a strangle. You sell a call and buy a further OTM call as protection.

    Example: Stock at $100

  • Sell $95 put @ $1.80
  • Sell $105 call @ $2.20
  • Buy $110 call @ $0.80

    • Total credit: $1.80 + $2.20 - $0.80 = $3.20

    The Key Feature: No Upside Risk

    Here's what makes the jade lizard special. If the total credit received exceeds the width of the call spread, there is no risk to the upside.

    In our example:

  • Call spread width: $110 - $105 = $5.00
  • Total credit: $3.20
  • Upside risk: $5.00 - $3.20 = $1.80

    • Wait — that's not zero. For a true no-upside-risk jade lizard, the credit needs to equal or exceed the spread width. Let's adjust:

  • Sell $95 put @ $2.50
  • Sell $103 call @ $3.20
  • Buy $108 call @ $1.50

    • Total credit: $2.50 + $3.20 - $1.50 = $4.20 Call spread width: $5.00 Upside risk: $5.00 - $4.20 = $0.80 (still not zero, but minimal)

    When the credit exceeds the spread width, the stock can rally to infinity and you still profit on the upside.

    Jade Lizard vs Short Strangle

    | Feature | Short Strangle | Jade Lizard | Upside riskUnlimitedLimited or zero Downside riskSubstantial (stock to $0)Substantial (stock to $0) Premium collectedHigherLower Number of legs23 Commission costLowerHigher Margin requirementHigherLower (defined risk on call side) | Management complexity | Lower | Moderate |

    When to Choose the Jade Lizard

    1. Bullish-to-neutral outlook. If you're slightly bullish, you're more worried about downside risk than upside. The jade lizard removes upside risk entirely (or nearly so).

    2. After a stock has dropped. If a stock just sold off and you're selling a put to potentially buy the dip, the jade lizard adds income from the call side without taking on unlimited upside risk if the stock bounces hard.

    3. Smaller accounts. The defined risk on the call side reduces margin requirements. A short strangle might require $2,500 in margin; the jade lizard might need only $1,200.

    4. Earnings season avoidance. If you're selling premium on a stock that could gap up on news (like an acquisition target), the jade lizard protects you from unlimited upside loss.

    When to Choose the Short Strangle

    1. Neutral outlook. If you have no directional bias and want maximum premium, the strangle collects more.

    2. Simple management. Two legs are easier to manage than three. Rolling a jade lizard requires adjusting the call spread, which involves two transactions instead of one.

    3. Maximum premium collection. When IV is high and you want to capture as much extrinsic value as possible, the strangle wins on raw premium.

    4. Balanced risk tolerance. If you're equally concerned about upside and downside, the strangle provides symmetric exposure.

    P/L Comparison

    Stock at $100, 30 DTE:

    Short strangle: Sell $105 call / $95 put for $3.50 credit Jade lizard: Sell $95 put / Sell $105 call / Buy $110 call for $2.70 credit

    | Stock at Expiration | Strangle P/L | Jade Lizard P/L | $80-$11.50-$12.30 $90-$1.50-$2.30 $95+$3.50+$2.70 $100+$3.50+$2.70 $105+$3.50+$2.70 $110-$1.50-$2.30 $115-$6.50-$2.30 | $120 | -$11.50 | -$2.30 |

    Above $110, the jade lizard caps your loss at $2.30 while the strangle keeps losing. Below $95, both strategies lose dollar-for-dollar — the jade lizard just starts from a worse position because it collected less premium.

    The Verdict

    Neither strategy is universally "better." The choice depends on:

  • Your directional bias — bullish leans toward jade lizard
  • Your risk tolerance — capping upside risk matters more for some traders
  • Account size — smaller accounts benefit from jade lizard's lower margin
  • Premium goals — maximum income favors the strangle

    • Many traders use both — strangles when they're market-neutral and jade lizards when they have a slight bullish lean or want protection against upside gaps.

    OptionsPilot displays the payoff diagram for both structures, making it easy to visualize the risk/reward difference before you commit to either trade.