What is a Jade Lizard? Definition, Formula, and Example
A jade lizard combines a short put with a short call spread so total premium collected exceeds the call spread's width, eliminating upside risk entirely.
What is a Jade Lizard?
A jade lizard is a three-legged, premium-collection options strategy that combines a short out-of-the-money put with a short out-of-the-money call spread (a short call plus a further OTM long call) on the same underlying and expiration. The strategy is constructed so that the total credit received is greater than or equal to the width of the call spread — which means there is zero risk to the upside no matter how high the stock runs. The only risk in the trade is to the downside, from the short put. It's a defined-risk-on-one-side, undefined-risk-on-the-other bet that the stock stays flat to moderately bullish through expiration.
How It's Constructed
A jade lizard has three legs, all typically 30-45 days to expiration:
1. Sell one OTM put below a support level — the strategy's only real risk.
2. Sell one OTM call closer to the money.
3. Buy one further OTM call to cap the call spread's width.
The strategy only qualifies as a "true" jade lizard (no upside risk) when:
Total credit received ≥ Call spread width
If total credit is less than the width, there's still some capped upside risk — traders then either widen the put strike, narrow the call spread, or accept the small residual risk in exchange for more premium.
Worked Example
With NVDA trading near $131, a trader constructs a jade lizard 30 days out:
- Sell the $120 put for $2.80 credit
- Sell the $138 call for $1.10 credit
- Buy the $141 call for $0.35 debit (call spread width: $3, net call spread credit: $0.75)
Total credit collected: $2.80 + $0.75 = $3.55 per share ($355 per contract). Because $3.55 exceeds the $3 call spread width, there is no upside risk — if NVDA finishes above $141, the call spread loses $2.25 (width minus its own credit), but the $2.80 put credit is retained in full, netting a $0.55 profit even in a blowout rally. Maximum profit of $355 occurs if NVDA finishes anywhere between $120 and $138 at expiration. Maximum loss is uncapped below the $116.45 breakeven ($120 put strike minus $3.55 total credit collected), since the short put is the only leg without an offsetting long option.
When Traders Use It
Jade lizards are built when a trader is neutral-to-mildly-bullish and wants to collect premium without capping upside, typically after a stock has bounced off support and implied volatility is elevated enough to make the put and call spread credits attractive. It's a popular structure among retail options traders (popularized by tastytrade) specifically because removing upside risk lets a trader sell premium into a rally without the "stock gaps up and I get run over on my short calls" scenario that plagues plain iron condors.
Limitations and Common Misconceptions
The strategy trades away upside protection for downside exposure — it is not risk-free, only one-sided. A sharp gap down through the short put strike produces losses just as large as a naked short put would, since the long call leg does nothing to offset that risk. It also requires enough implied volatility to generate a call-spread credit that meets or exceeds the spread's width; in low-IV environments, traders either can't construct a true jade lizard or have to accept residual upside risk to get worthwhile premium. Finally, assignment risk on the short put exists at any time if it goes in-the-money, particularly around dividend dates.