The Jade Lizard: A Credit Strategy with Zero Upside Risk
Summary
A jade lizard combines a short put with a short call spread (bear call spread) on the same underlying. When structured correctly, the total credit received exceeds the width of the call spread, eliminating all risk to the upside. The only risk is to the downside through the short put (identical to a cash-secured put). This creates a unique payoff: you profit from the stock going up, staying flat, or declining modestly, with risk only if the stock drops significantly.
Key Takeaways
The jade lizard works when the combined credit from the short put and short call spread exceeds the call spread width. For example, if the call spread is $5 wide and the total credit is $5.50, there's no upside risk. The stock can rally to infinity and you keep $0.50 minimum. Downside risk is identical to selling a naked put. Best deployed on bullish-to-neutral underlyings with elevated IV where you'd be comfortable owning the stock at the put strike. The jade lizard is popular among tastytrade-style traders as a twist on the short strangle with one side's risk eliminated.
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Every credit strategy has risk on at least one side. Credit spreads have risk if the stock moves through the short strike. Short strangles have risk on both sides. The jade lizard eliminates risk on one entire side, creating an asymmetric payoff that favors the seller.
The Structure
Sell 1 OTM put (uncovered / cash-secured) Sell 1 OTM call (short call) Buy 1 further OTM call (long call, creating a bear call spread)
The key: Total credit collected > call spread width
Example: MSFT at $420, 30 DTE
Net credit: $3.50 + $3.00 - $1.50 = $5.00 Call spread width: $5.00 ($445 - $440) Credit exceeds spread width: $5.00 ≥ $5.00 ✓ (zero upside risk)
Scenario Analysis
MSFT rises to $500: The call spread hits max loss of $5.00, but you collected $5.00 credit. Net P&L: $0. Zero loss regardless of how high MSFT goes.
MSFT stays at $420: Both sides expire worthless. You keep the full $5.00 credit ($500 profit).
MSFT drops to $400: The put is at the money. The call side expires worthless. Net P&L: approximately $5.00 credit minus minimal put assignment risk. Close the put for a small loss, net positive overall.
MSFT drops to $380: Put is $20 ITM. Assignment at $400, effective cost basis $395 ($400 - $5.00 credit). Unrealized loss of $15 per share. This is the jade lizard's risk zone.
Why the Jade Lizard Works
Volatility Skew Advantage
OTM puts have higher IV than OTM calls due to volatility skew. The short put generates proportionally more premium than the call side, making it easier to collect enough total credit to exceed the call spread width.
Three Ways to Win
The only loss scenario is a significant stock decline through the put strike, which is the same risk as a simple cash-secured put.
When to Use the Jade Lizard
Bullish-to-neutral outlook. You expect the stock to stay flat or rise, but you want protection in case of a rally through your call strike.
Elevated IV. Higher IV generates richer premium on both the put and call sides, making it easier to exceed the call spread width.
You'd own the stock at the put strike. The short put carries full assignment risk. Only use strikes where you'd be comfortable buying shares.
Alternative to a short strangle. The jade lizard gives up some premium compared to a strangle but eliminates upside risk entirely. If you're worried about a stock gapping up on news/earnings, the jade lizard handles that scenario at zero cost.
Management
Close at 50% of max credit. When the combined position is worth $2.50 or less (50% of $5.00 credit), buy it back.
If the put is tested: Treat it like any short put. Roll down and out for additional credit, or accept assignment.
If the call spread is tested: No action needed. The upside is fully covered. The worst case is $0 P&L from the call side.
Jade Lizard vs Other Strategies
vs Short Strangle: The jade lizard has zero upside risk but collects slightly less premium (the long call costs money). Choose the jade lizard when you're concerned about an upside gap.
vs Bull Put Spread: The jade lizard has higher potential profit (additional call spread credit) with the same downside risk. The call side is free money if the stock goes up.
vs Covered Call + Short Put: Similar profit profile but the jade lizard requires less capital (no stock ownership).
OptionsPilot's strike finder helps identify jade lizard configurations where the combined credit exceeds the call spread width, filtering for optimal strike combinations.