What is a jade lizard and why is it popular with premium sellers?

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AcadiFi · Accepted Answer

A jade lizard combines a short OTM put with a short OTM call spread, engineered so the total credit exceeds the width of the call spread—eliminating upside risk. Example: stock at $100, sell the 90 put for $1.80, sell the 105 call for $1.40, buy the 110 call for $0.60. Net credit = 1.80 + 1.40 - 0.60 = $2.60. Call spread width is $5. Since credit ($2.60) is less than width ($5), this particular setup still has upside risk. To qualify as a true jade lizard, credit must exceed width: sell the 105 call for $2.80 and buy the 115 call for $0.40, credit becomes 1.80 + 2.80 - 0.40 = $4.20 versus width $10—still risk. The cleanest jade lizards use narrower call spreads.

The appeal is zero upside risk when credit exceeds spread width: above the highest strike, the short put expires worthless and the capped call spread loss equals spread width minus premium collected. All the risk is on the downside if the stock crashes below the short put strike. Traders use jade lizards in high implied volatility environments where fat premiums make the math work. Assignment on the short put is the primary exit scenario, leaving the trader long stock at a discount. It combines premium collection with defined upside—ideal for range-bound to moderately bullish markets.

What is a jade lizard and why is it popular with premium sellers?

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