What Is a Jade Lizard? The Credit Leaves Downside Risk

A fictional three-option position collects $300 and can give back at most $200 through its call spread at expiration. A sharp rally therefore leaves a $100 gain before costs. A collapse to zero produces a $9,200 loss through its short put.

A jade lizard combines a short put with a bear call spread: one short call and one higher-strike long call, all on the same underlying with the same expiration and equal contract quantities. Tastylive's jade-lizard explanation describes the structure and the condition that total credit exceeds the call-spread width. That condition protects the combined expiration result on the upside. The put remains exposed to a falling stock.

Three legs, one opening credit

Assume XYZ stock is at $100. These invented filled premiums illustrate the mechanics; they are neither live quotes nor suggested strikes. Each contract is stipulated to be an unadjusted, physically settled American-style equity option representing 100 shares. All three have the same expiration.

The calls form a $2-wide bear call spread. The Options Industry Council's bear-call-spread guide explains how the higher-strike long call offsets further short-call losses above its strike. OMP's vertical-spread guide covers that two-leg component.

Here the call spread contributes $60 of the opening credit and the short put contributes $240. Compare the whole position's $300 credit with the call spread's $200 gross width. Subtracting the call spread's own $60 credit again would double-count premium already included in the $300.

What happens at expiration

The following model excludes commissions, fees, taxes, financing, slippage and any stock exposure created by unmatched exercise or assignment. It values every option's intrinsic payoff together at the same expiration stock price. With S as that price, profit or loss for one three-contract set is:

100 × [3 - max(95 - S, 0) - max(S - 105, 0) + max(S - 107, 0)]

Between $95 and $105, inclusive, none of the options has intrinsic value and the model retains the full $300. Between $105 and $107, the short call reduces the gain. At $107 and above, the calls together cost $200 in intrinsic payoff, leaving $100 from the original credit. Further price rises change neither figure.

Below $95, both calls have zero intrinsic value and the short put drives the result. Each additional $1 decline reduces the set's profit by $100. The lower breakeven is $95 minus the $3 total credit, or $92. At zero, the $9,500 put obligation less the $300 credit gives a $9,200 loss. The stock's zero-price floor makes this loss finite, but it is more than thirty times the opening credit.

OMP's cash-secured-put and put-credit-spread comparison shows what buying a lower-strike put would change. This jade lizard has no such long put. Its only purchased option is a call above the market.

The credit-width condition has a precise boundary

Let C be total credit per share and W the difference between the two call strikes. Above the long-call strike, the combined expiration result per share is C - W, provided the put strike is below both call strikes and the original legs remain matched.

For the same $2-wide call spread, a $3 total credit leaves $1 per share. A $2 total credit leaves zero before costs. A $1.50 total credit leaves a $0.50 loss per share at high expiration prices. The third case also has an upper breakeven at $106.50, calculated as the $105 short-call strike plus $1.50.

Even a positive remainder can be consumed by charges or execution losses. A displayed credit must first be achievable across all three legs. OMP's small-credit transaction-cost example explains why premium and final account profit can differ. The table above says nothing about the price available to close the position before expiration.

Assignment still creates stock obligations

FINRA's assignment guidance explains that an American-style short option can be assigned before expiration. A short put requires a stock purchase; a short call requires stock delivery. Owning another option does not automatically fulfil those obligations.

In this model, assignment of the $95 put means purchasing 100 shares for $9,500. The initial $300 receipt does not supply that full amount. The account needs a funding plan for the purchase, independently of the small opening credit.

Call assignment also requires attention. If the short $105 call is assigned, the long $107 call remains a separate position requiring an exercise, closing or other account decision. Broker procedures, exercise deadlines and margin requirements matter. Unmatched stock exposure can move after an option expires, beyond the paired payoff model.

For a real contract, verify the actual multiplier and deliverable before using any 100-share figures. Then record the total filled credit, call-spread width, lower breakeven, zero-price loss and funds required on put assignment. The call-spread calculation answers only one part of that review.

Disclosure: Options Matrix Pro makes options-analysis software. General education, not financial advice. See our disclaimer.