What Is a Jade Lizard?

A jade lizard combines three options on the same stock with the same expiration: you sell a put below the share price, sell a call above it, and buy a second call further up. In building-block terms it is a short put plus a short call spread.

Together the three trades bring in money, a credit. The rule that defines the strategy is that the credit must be larger than the gap between the two call strikes. Then the call spread's worst loss is already paid for, and a rally cannot make the trade lose money.

The worked example. A stock trades at $100, with 45 days to expiration and 35% volatility. Sell the $95 put for $2.69, sell the $105 call for $2.91, and buy the $108 call for $2.06. The credit is $3.54, more than the $3 gap between the calls.

Maximum gain: $3.54, if the stock finishes between $95 and $105.

Above $108: a gain of $0.54, the credit minus the $3 the call spread can cost.

Breakeven: $91.46, the put's strike minus the credit. Below that the loss grows a dollar for every dollar the stock falls, as with any sold put.

Traders use it when they expect the stock to hold steady or drift up, and when option prices are high, since a seller then collects more.
Woodblock-style print of a lizard sheltering under a stone ledge, open ground below

Remember

Four things to keep in mind about a jade lizard.

  • The credit is the premium from the put and the call you sell, minus the premium for the call you buy.

  • Buying the higher call caps the loss above it at the width of the call spread.

  • At expiration you keep the whole credit anywhere between the put strike and the lower call strike.

  • When the credit is larger than the call spread is wide, no rally can cost you money; the risk sits below the put.

Reading the Worked Example

Top: profit at expiration. The three options are priced with the Black–Scholes model: a $100 stock, 45 days to expiration, 35% volatility. Selling the $95 put brings in $2.69 and selling the $105 call brings in $2.91; buying the $108 call costs $2.06. The trade starts with a credit of $3.54. Anywhere between $95 and $105 at expiration, all three options expire worthless and you keep the whole $3.54. Above $105 the sold call starts to cost money, but only until $108, where the bought call takes over. The most the call spread can cost is its width, $3, so above $108 you still keep $0.54. Below $95 the sold put costs a dollar for every dollar the stock falls, and the trade loses money below $91.46, the put strike minus the credit. Bottom: the same trade without the bought call. The dashed line is a short strangle, the $95 put and the $105 call sold on their own. It collects more, $5.60, so its downside breakeven is lower, $89.40. But above $110.60 its loss keeps growing as long as the stock keeps rising. The jade lizard gives up $2.06 of credit to close off that side completely.
Chart of a jade lizard: profit at expiration against the share price, flat at the $3.54 credit between $95 and $105, and compared with a short strangle whose loss grows without limit above $110.60

Choosing the Strikes and Knowing the Risk

  • Placing the Strikes

    A lower put strike makes a fall less likely to hurt but brings in less credit. A narrower call spread costs less to protect, which makes it easier for the credit to exceed its width. The no-upside-risk rule only holds while the credit stays larger than that width.

  • Where the Risk Lives

    All the risk sits below the put strike. If the stock falls to zero, the loss is the put strike minus the credit: $91.46 a share in the example. A trader who sells the put should be willing to own the stock at that strike.

  • The Mirror Image

    A reverse jade lizard flips the trade: sell a call and a put spread below the share price. When the credit is larger than the put spread is wide, a fall cannot cost money, and the risk sits above the call strike instead.

FAQ

  • What is a jade lizard?

    An options strategy with three legs on the same stock and expiration: sell a put below the share price, sell a call above it, and buy a call at a still higher strike. It is built so that the credit collected is larger than the gap between the two call strikes.

  • How do you calculate the breakeven of a jade lizard?

    Subtract the credit from the put strike. In the worked example, $95 minus $3.54 gives $91.46. When the credit is larger than the call spread is wide, there is no breakeven on the upside, because the trade cannot lose money there.

  • Why must the credit be larger than the width of the call spread?

    Above the higher call strike, the call spread costs exactly its width. If the credit is larger, you keep the difference however far the stock rises: $3.54 minus $3 leaves $0.54 in the example. If the credit is smaller, a big rally loses money.

  • What is the maximum loss of a jade lizard?

    It comes from the sold put. If the stock fell to zero, the loss would be the put strike minus the credit, $91.46 a share in the example. The loss grows a dollar for every dollar the stock falls below the breakeven.

  • How is a jade lizard different from a short strangle?

    A short strangle sells the same put and call but buys nothing. It collects more, $5.60 in the example, so its downside breakeven is lower, but its loss above the upper breakeven has no limit. The jade lizard pays for a higher call to remove that risk.

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