Jade Lizard Strategy

What is a Jade Lizard?

The Jade Lizard is one of those strategies with a funny name but serious profit potential. It's a neutral-to-bullish strategy that combines a short put with a short call spread, creating a position with no upside risk. Yes, you read that correctly: unlimited profit potential to the upside, defined risk to the downside, and you collect premium upfront.

Here's the magic: by selling a put and a call spread simultaneously, you structure the trade so the total premium collected exceeds the width of the call spread. This means even if the stock rockets through your short call spread, you still profit because you collected more premium than the spread's max loss.

The setup: Stock at $50
- Sell 1 put at $45 for $2.00
- Sell 1 call at $55 for $1.50
- Buy 1 call at $60 for $0.60
Total credit: $2.90
Call spread width: $5
Result: If stock goes to infinity, call spread loses $5, but you keep $2.90 credit, net loss only $2.10. But wait—your short put also expired worthless, so you actually profit!

When to Use a Jade Lizard

1. High IV + Neutral to Bullish Outlook

Jade Lizards work best when implied volatility is elevated (IV rank > 50). High IV means fat premiums, making it easier to collect enough credit to cover the call spread width.

2. When You're Comfortable Owning the Stock

The short put means you could be assigned shares if the stock drops. Only use Jade Lizards on stocks you'd happily own at the put strike price.

3. Earnings Plays

Some traders use Jade Lizards around earnings when IV is inflated. The strategy profits from IV crush as long as the stock doesn't crash through the put strike.

4. Better Than a Naked Put

If you were going to sell a naked put anyway, adding the call spread generates extra premium while eliminating upside risk. It's almost always better than a standalone short put.

How to Set Up a Jade Lizard

Step-by-Step Construction

Example: AAPL at $180, IV rank 60%

Step 1: Sell OTM Put (10-20% OTM)
Sell 1 AAPL $165 put, 45 DTE
Credit: $3.50

Step 2: Sell OTM Call (closer to ATM)
Sell 1 AAPL $190 call, 45 DTE
Credit: $2.80

Step 3: Buy Further OTM Call (5-10 points above short call)
Buy 1 AAPL $200 call, 45 DTE
Debit: $1.20

Total Credit: $5.10
Call Spread Width: $10
Net Upside Risk: $4.90 profit (even if AAPL goes to $300)

The Key Rule

Credit collected must exceed call spread width, or at minimum equal it for a "perfect" Jade Lizard with zero upside risk.

If call spread is $10 wide, you need $10+ in total credit. This ensures profit even with maximum upside movement.

Profit & Loss Scenarios

Using AAPL example: $165 put / $190-$200 call spread for $5.10 credit

Scenario 1: Stock Drops to $155

• Short put: Loses $10 ($165 - $155)
• Call spread: Expires worthless, $0
• Net: -$10 + $5.10 credit = -$4.90 loss
• Max loss occurs at $0 (though stock won't go to zero): $165 - $5.10 = $159.90 max loss

Scenario 2: Stock Stays at $180

• All options expire worthless
• Net: $5.10 profit (100% of credit, max profit)

Scenario 3: Stock Rallies to $210

• Short put: Expires worthless, $0
• Call spread: Max loss of $10 ($200 - $190)
• Net: -$10 + $5.10 credit = -$4.90 loss

Breakeven Points:
- Downside BE: $165 - $5.10 = $159.90
- Upside BE: $190 + $5.10 = $195.10
- Profit zone: $159.90 to $195.10 (19.5% range)

Managing a Jade Lizard

Profit Target: 50-75% of Max Profit

When your Jade Lizard has made 50-75% of max profit, close it. Don't be greedy waiting for 100%—the last 25% isn't worth the risk of a sudden move.

Example: Collected $5.10, target $3.50-4.00 profit. When you can close for $1.10-2.00, do it.

If Stock Drops Toward Put Strike

Option 1: Roll the put down and out
Close $165 put, sell new $160 put 30-45 days further out. Collect additional credit, lower breakeven.

Option 2: Take assignment
If you're okay owning the stock, let the put be assigned. You own shares at an effective price of $165 - $5.10 credit = $159.90.

Option 3: Close entire position
If you don't want the stock, close the whole Jade Lizard for a loss before it gets worse.

If Stock Rallies Through Call Spread

Good news: your upside risk is capped! Since you collected more than the spread width, you're still profitable even at max upside.

Option 1: Let it ride
Your loss is capped. Let it expire and take the small loss on the call spread while keeping the put premium.

Option 2: Close early
If the stock blows through your short call with lots of time left, close the call spread to avoid further risk, keep the put open to collect remaining premium.

Jade Lizard vs Alternatives

Jade Lizard vs Short Put

Jade Lizard vs Iron Condor

Iron Condor: Defined risk both sides, profit if stock stays in range
Jade Lizard: One-directional defined risk (downside), no upside risk

Use Iron Condor when neutral, Jade Lizard when neutral-to-bullish.

Key Takeaways