Jade Lizard

What it is and when to use it

The jade lizard is a short put with a short call spread added, under one condition that defines the structure: the total credit must be greater than or equal to the width of the call spread. If it is, the maximum upside loss is zero — whatever happens above, the premium collected covers the most the call spread can ever cost.

That turns it into a premium sale with risk on one side only. Against an iron condor, which can lose at both extremes, the jade lizard concentrates all the risk below and collects considerably more: $635 against $285 on the same underlying and expiry. The trade-off is that the downside loss is not capped by any wing.

You use it when you are neutral to mildly bullish and willing to buy the underlying lower, which is exactly the disposition a cash-secured put demands. In fact the cleanest way to understand it is as precisely that: a cash-secured put with a call spread bolted on to collect more, without adding risk on that side.

How it is built

• Sell 1 out-of-the-money put, at the price at which you would buy the underlying.
• Sell 1 out-of-the-money call.
• Buy 1 call above the previous one — the wing that caps the upside.
• Check the condition: total credit ≥ width of the call spread. Without that, it is not a jade lizard.

That check is the whole structure. With a credit of 6.35 and a 5-point wing, 1.35 points are left over: above 610 the position makes $135 no matter what. If the credit were 4.22 over the same wing, there would be $78 of upside risk and the structure would be something else.

A full worked example

SPY at 580.00, 45 days to expiry.

Net credit = 6.35 × 100 = $635, over a 5-point call spread: no upside risk.

Above 610 the call spread is worth at most $500 and you have already collected $635: the position makes $135 whatever you do. That is the feature that gives the structure its name and the reason it is preferred over an iron condor when the bias is mildly bullish.

Maximum profit, maximum loss and break-evens

There is only one break-even and it is below. There is none above: the position always makes something, between $135 and $635 depending on where price finishes.

• Maximum profit = net credit = $635, with price between 565 and 605 at expiry.
• Minimum upside profit = credit − call spread width = (6.35 − 5) × 100 = $135. Never less, however far it rises.
• Maximum loss = (put strike − credit) × 100 = $55,865 if the underlying went to zero.
• Downside break-even = put strike − credit = 565 − 6.35 = 558.65, 3.68% below the current price.

Compare it with the iron condor on the same underlying: the condor collects $285 and caps the loss at $715 on both sides; the lizard collects $635, cannot lose above and has no protection at all below. The decision is not which collects more, but whether you are willing to buy SPY at 558.65.

The position Greeks

Positive delta, negative gamma and negative vega is the classic profile of premium selling with a bullish tilt: comfortable while the market rises or stands still, and all three Greeks pushing against you at once when it falls.

Management: when to close, when to roll

Close at 50% of the credit

Buying it back at 3.18 captures half the profit and releases the downside risk, which is the only one there is. With the upside unable to lose, the only thing being managed is the put.

The upside can be left to run

If price rises, the call spread approaches its $500 maximum loss and the short put gains. Because the credit already covers the spread, that side demands no action.

If price falls towards the put

The same options as on a cash-secured put: accept assignment if you wanted the underlying, or roll down and out. What you should not do is close only the call spread to "release risk": that leaves a naked short put without the credit that was financing it.

Have the assignment capital

If the put is assigned you buy 100 shares at 565: $56,500. The structure is only conservative if that money exists.

Common mistakes

Not checking the credit condition

If the credit is smaller than the width of the call spread, there is no jade lizard: there is a structure with risk on both sides and no wing below, which is the worst of both worlds. The check is a subtraction and it happens before the order goes out.

Choosing a call wing that is too wide

A 605/620 spread is easier to fill and demands a 15-point credit to remove upside risk, which no reasonable put will provide. Narrow wings — 5 points — are what make the structure viable.

Forgetting the downside is a naked put

The $635 credit and the absence of upside risk give a feeling of safety that the lower side does not share. Below 558.65 the position loses exactly like a short put.

Opening it on an underlying you do not want to own

Assignment is a likely outcome across many repetitions. If you would not buy 100 shares at 565, the structure is not for you however well the numbers read.