The jade lizard is a unique options income strategy that eliminates upside risk while still collecting substantial premium. By combining a short put with a call credit spread, you create a position that profits in neutral to bullish scenarios with defined risk on rallies. This guide will teach you how to use jade lizards for consistent income.
What is a Jade Lizard?
A jade lizard consists of three options:
- Short put: Sell an out-of-the-money put
- Short call: Sell an out-of-the-money call
- Long call: Buy a call at a higher strike (creates call credit spread)
The jade lizard's unique advantage: When structured correctly, the total premium collected exceeds the width of the call spread. This means you have NO risk to the upside - if the stock rallies past your call spread, you still profit from the premium collected.
How the Jade Lizard Works
Example: Jade Lizard on AMD
AMD is trading at $150. You are neutral to bullish.
- Sell $140 put (30 DTE) for $2.50
- Sell $160 call (30 DTE) for $3.00
- Buy $165 call (30 DTE) for $1.75
- Total credit: $2.50 + $3.00 - $1.75 = $3.75
- Call spread width: $5.00
The magic: Credit ($3.75) is less than spread width ($5.00), so there IS upside risk of $1.25 in this example. Let us adjust:
- Sell $135 put for $1.50 (wider put strike)
- Sell $160 call for $3.00
- Buy $165 call for $1.75
- Total credit: $1.50 + $3.00 - $1.75 = $2.75
Still not zero upside risk. For a true jade lizard, you need credit >= spread width. Let us try higher IV or different strikes.
Setting Up a True Zero-Upside-Risk Jade Lizard
For the jade lizard to have no upside risk, your total credit must equal or exceed the call spread width.
Example: Proper Jade Lizard Setup
IWM trading at $200 with elevated IV.
- Sell $190 put for $3.50
- Sell $210 call for $2.50
- Buy $215 call for $1.25
- Total credit: $3.50 + $2.50 - $1.25 = $4.75
- Call spread width: $5.00
Analysis:
- Max profit (stock between $190-$210): $4.75 ($475)
- Upside risk: $5.00 - $4.75 = $0.25 ($25) - almost none!
- Downside risk: Stock to zero minus $4.75 credit
- Breakeven: $190 - $4.75 = $185.25
Why Trade Jade Lizards?
Advantages
- No or minimal upside risk: Big rallies do not hurt you
- High premium: Collect from both put and call spread
- Bullish bias friendly: Works well in uptrending markets
- Defined risk on calls: Unlike naked strangles
- Lower margin: Call side is defined risk
Risks
- Unlimited downside risk: Put side has theoretically unlimited risk
- Stock assignment: If put goes ITM, you may own shares
- Requires elevated IV: Hard to get zero upside risk in low IV
Strike Selection for Jade Lizards
Put Strike Selection
- 20-30 delta: Enough premium to contribute to the structure
- Below support: Give the stock room to drop
- Price you would own at: Be willing to hold if assigned
Call Spread Selection
- Short call at 25-30 delta: Decent premium collection
- Long call 5-10 points higher: Standard spread width
- Above resistance: Reduce likelihood of being tested
Achieving Zero Upside Risk
The key formula: Put premium + Call spread credit >= Call spread width
- If math does not work, either skip the trade or accept minimal upside risk
- Higher IV environments make zero upside risk easier
- Narrower call spreads are easier to cover with premium
Best Underlyings for Jade Lizards
Ideal Characteristics
- High IV: 35%+ implied volatility for better premium
- Liquid options: Tight bid-ask spreads
- Stocks you would own: Comfortable being assigned the put
- Neutral to bullish outlook: Not expecting big drops
Good Candidates
- High IV ETFs: IWM, XLE, XLF
- Tech with IV: AMD, NVDA, TSLA
- Volatile stocks: Biotech, growth stocks
Managing Jade Lizard Positions
Profit Taking
- 50% profit: Close when position is worth half the credit
- 21 DTE: Close around 21 days to expiration
- Individual legs: Close call spread early if profitable, manage put separately
Managing the Put Side
The put is your main risk. If tested:
- Roll down and out: Move to lower strike, extend time
- Accept assignment: If you want to own the stock
- Close for loss: If thesis is broken
- Add a put spread: Buy a lower put to define risk (creates iron condor)
Managing the Call Spread
The call spread has defined risk, so management is simpler:
- If threatened: Let it be - your risk is capped
- Close early: Take profit if call spread value drops 75%+
- Roll up: If bullish and want to stay in trade
Example: Rolling a Tested Put
Your IWM jade lizard put at $190 is threatened. IWM drops to $192.
- The $190 put is now worth $6.00 (you sold for $3.50)
- Buy back $190 put for $6.00 (loss of $2.50)
- Sell $185 put (next month) for $5.00
- Net credit on roll: -$1.00
- Reduced original credit but gave yourself more room
Position Sizing for Jade Lizards
Sizing rule: Size jade lizards based on the put side risk, not the call side. If the put is on a $150 stock, your worst case is being assigned at $150 minus your credit. Size so this exposure is 10-15% of your account maximum.
- Calculate max loss as if put goes fully in the money
- Use the put assignment capital as your position size guide
- Keep cash available for potential stock ownership
- Trade smaller when IV is lower
Jade Lizard Income Expectations
- Monthly return on capital: 3-6% on buying power
- Win rate: 65-80% with proper setup
- Best case: Stock stays between strikes, keep full premium
- Upside case: Stock rallies - minimal loss or small profit
- Downside case: Stock drops - may need to manage or take assignment
Track Your Jade Lizard Performance
Pro Trader Dashboard tracks all your jade lizard trades automatically. Monitor your win rate, premium collected, and see how the strategy performs over time.
Jade Lizard vs Other Strategies
Jade Lizard vs Short Strangle
- Jade lizard: Defined risk on call side, no upside risk
- Strangle: Undefined risk both sides, more premium
- Winner: Jade lizard for risk-adjusted returns in bullish environments
Jade Lizard vs Iron Condor
- Jade lizard: Undefined put risk, but more premium
- Iron condor: Fully defined risk, less premium
- Winner: Depends on risk tolerance and market view
Jade Lizard vs Put Credit Spread
- Jade lizard: More premium from adding call spread
- Put credit spread: Simpler, defined risk both sides
- Winner: Jade lizard when IV is elevated and bullish
Common Jade Lizard Mistakes
- Not checking the math: Ensure credit >= call spread width for zero upside risk
- Wrong underlying: Trading on stocks you would not want to own
- Ignoring put risk: Focusing too much on the no-upside-risk feature
- Trading in low IV: Cannot achieve favorable risk profile
- Over-sizing: Not accounting for full put assignment risk
When to Use Jade Lizards
Ideal Conditions
- Elevated IV (30%+ on the underlying)
- Neutral to bullish market outlook
- Stock has found support and you would buy at put strike
- You want high premium without unlimited upside risk
Avoid When
- IV is low (cannot achieve zero upside risk)
- Stock is in a clear downtrend
- You would not want to own shares at the put strike
- Major events are pending (earnings, FDA, etc.)
Summary
The jade lizard is an excellent income strategy for traders who want high premium collection without upside risk. By combining a short put with a call credit spread, you create a position that profits in neutral to bullish scenarios while defining your risk on rallies. Focus on high IV underlyings, ensure your math creates minimal upside risk, and always manage the put side carefully. Track your results and refine your approach over time.
Want to explore related strategies? Learn about short strangle income for higher premium, or discover covered strangle income for a similar concept with stock ownership.