Jade Lizard

A jade lizard removes one whole side of the risk — built correctly, it has no loss to the upside, leaving only the downside to manage.

What a jade lizard is made of

A jade lizard is a short-premium structure that combines two pieces on the same stock and expiration:

• A short out-of-the-money put below the current price.
• A short out-of-the-money call spread above the current price: sell a call, and buy a further-out call for protection.

You collect a credit from all of it. The short put alone is an undefined-risk leg on the downside — see defined versus undefined risk — while the call spread is defined-risk on the upside. The clever part is how the credit is sized to cancel the upside risk entirely.

The defining rule

The structure is only a true jade lizard if the total credit collected is at least as large as the width of the call spread. When that holds, the most the call spread can lose at the top — its width — is fully covered by the credit you already banked. That means there is no loss if the stock rallies hard: the call spread's loss is paid for in advance. If the credit is smaller than the call-spread width, the no-upside-risk property fails and you simply have a short put plus a short call spread with risk on both ends.

What it is betting on

A jade lizard is a neutral-to-bullish, high-probability premium trade. The best case is the stock finishing between the short put strike and the short call strike at expiration, where every option expires worthless and you keep the whole credit. You are mainly expressing the view that the stock will not fall sharply.

The shape of profit and loss

• Max profit = the total credit collected, kept if the stock finishes between the short put and the short call at expiration.
• Upside: no loss, provided the defining rule holds. Above the call spread, the spread's full-width loss is offset by the credit.
• Downside: this is where all the risk lives. Below the short put's break-even, losses grow as the stock falls — a large, bounded loss as the stock approaches zero, exactly like any short put.
• Downside breakeven = the short put strike minus the total credit.

A worked example

First, a caution about getting the arithmetic right. Imagine selling a put for 1.20 and a five-point-wide call spread for 0.80, a total credit of 2.00. Here the credit (2.00) is less than the call-spread width (5.00), so this would not be a true jade lizard — the upside is not fully covered, and a hard rally would still lose money.

Now a correct one. Suppose a stock trades near 100 and you build:

• Sell the 95 put for a credit of 1.30.
• Sell the 105 call and buy the 106 call — a one-point-wide call spread — for a net credit of 0.30.
• Total credit: 1.30 + 0.30 = 1.60 (160 dollars per one-lot, since each contract covers 100 shares).

Check the rule: total credit 1.60 is greater than the call-spread width of 1.00, so the upside risk is fully covered.

• Max profit: the 1.60 credit (160 dollars), kept if the stock finishes between 95 and 105.
• If the stock rallies above 106: the call spread loses its full width of 1.00, but you keep the 1.60 credit, for a net gain of 0.60 (60 dollars). No upside loss — the “no risk to the upside” property holds.
• Downside breakeven: 95 − 1.60 = 93.40. Below that, losses grow as the stock falls.

The honest failure mode

A jade lizard trades the upside tail for a high probability of a small win, but it does nothing to soften a fall. A sharp decline in the stock drives the short put deep into the money, and the loss can be many times the credit collected — bounded only by the stock reaching zero. It is a structure that wins frequently and quietly, with its entire danger packed into the one scenario it does not protect against: a fast move down.

Educational only — not investment advice. Options involve a substantial risk of loss and are not suitable for every investor.