A Structure With No Upside Risk At All
Size the credit above the call spread's width and the upside risk disappears entirely.
Worth reading first: Bear Call Spreads: Selling the Upside, Cash-Secured Puts, From Cash to Assignment
Course catalogue99 lessons
A jade lizard is a short put plus a bear call spread, sized so the total credit exceeds the width of the call spread.
When that condition holds, the position has no upside risk at all. Not capped. None. The stock can triple and you still keep money.
Building one, and the condition that matters
Adjust the strikes and the call spread width. Watch the upside risk tile: as long as the total credit covers the call spread's width, a rally cannot cost you anything.
narrower = easier to cover with the credit
The credit no longer covers the call spread width, so a large rally now costs money. Narrow the call spread or move the short strikes closer to restore the property.
The one condition
Total credit ≥ call spread width × 100Satisfy this and the entire upside is risk-free.
The logic is simple once seen. If the stock rockets, the call spread loses at most its width. If you collected more than that width in total credit, the loss on the calls is fully paid for before it happens, and the short put expires worthless, since the stock went up.
| Stock at expiration | Put | Call spread | Net |
|---|---|---|---|
| $150 | Expires | −$500 | +$20 |
| $112 | Expires | −$500 | +$20 |
| $107 | Expires | $0 | +$520 |
| $95 | Expires | $0 | +$520 |
| $87.80 | −$520 | $0 | $0 |
| $70 | −$2,300 | $0 | −$1,780 |
Short $93 put, short $107 call, long $112 call. Total credit $520, call spread width $500.
Read the top row again: the stock rose 50% and the position still made money. That is unusual enough to be worth the odd name.
Why it is a genuinely sensible structure
Compare it to selling the cash-secured put alone. You collect the put premium either way. The call spread adds credit, and if the condition holds, adds no risk in the scenario it covers.
So relative to a plain cash-secured put, a jade lizard is:
- More credit, which lowers your breakeven on the put side.
- The same downside risk, essentially unchanged.
- No new upside risk, provided the sizing condition is met.
That is a rare shape: additional income with no additional tail. The cost is that a strong rally now caps your gain at roughly the credit minus the spread width rather than the full credit. You give up a modest amount in the very good case.
Constructing one
Start with the put. Choose it exactly as you would a cash-secured put, a strike you would happily own at, sized to what the account can secure. Everything downstream is secondary.
Then find a call spread the credit can cover. A narrow spread is easier to cover; $1 to $5 wide is typical. If the total credit does not exceed the width, either narrow the spread or move the call strikes closer to the money.
Check the condition explicitly before sending the order. It is the entire property that distinguishes this from an ordinary three-leg position, and it is easy to lose by adjusting one strike.
When it does not fit
If you want the shares from a rally. You do not get them either way, but the call spread caps a strong move that a plain short put would have left you fully exposed to , in the good direction.
In a low-volatility environment. If the credit is thin, covering the call spread width may require selling calls uncomfortably close to the money.
If it adds complexity you will not manage. Three legs means three legs to close, three bid-ask spreads each way, and a position that is harder to roll. On a small account that friction can consume the extra credit.
What can go wrong
Breaking the condition by adjusting a strike. Widen the call spread and the upside risk returns silently.
Treating it as low risk. The downside is a naked short put.
Ignoring the friction. Six spread crossings per round trip.
Selling the calls too close to chase the condition. That raises the chance of the call spread being tested, even if it cannot cost you money.
Key takeaways
- A jade lizard is a short put plus a bear call spread, with total credit exceeding the call spread's width.
- When that condition holds the position has no upside risk at all, a rally cannot cost you anything.
- The risk did not vanish; it all sits below the short put, identical to a naked short put.
- Versus a plain cash-secured put it adds credit and no new tail, at the cost of capping a strong rally.
- Check the credit-versus-width condition explicitly, because adjusting any strike can break it.
Check your understanding
1. You collect $520 total on a jade lizard with a $5-wide call spread. The stock rallies 50%. What happens?
2. Where does a jade lizard's risk actually sit?
3. What breaks the no-upside-risk property?
Related lessons
Track what you have worked through. No account needed. View transcript
This browser only