Jade Lizard

Core Thesis

A Jade Lizard combines a short put with a short call spread to collect substantial credit while eliminating upside loss when structured correctly. It is a bullish-to-neutral premium strategy with concentrated downside risk.

Structure

• Short OTM put at $K_p$.
• Short OTM call at $K_c$.
• Long further OTM call at $K_{c2}$.
• Net credit $C$.

Key Construction Constraint

To remove upside risk:

$$C \ge (K_{c2} - K_c)$$

When true, the call-spread max loss is fully covered by credit.

Expiration Payoff Mathematics

• Downside break-even: $K_p - C$.
• Downside max loss (stock to zero): $K_p - C$.
• Upside max loss: $(K_{c2} - K_c) - C$ (zero or better if constraint above holds).

Greek Profile

• Net positive theta and generally positive delta.
• Short vega and negative gamma, especially near short put.
• Behavior dominated by short put tail risk.

Design Rules

• Choose short put at a level where assignment is acceptable.
• Build call spread width specifically to satisfy no-upside-loss condition.
• Prefer richer IV environments with contained upside gap risk.

Management Framework

• Take profits once most credit is captured; do not overstay for the final cents.
• If downside pressure increases, reduce or roll the put risk first.
• Avoid carrying through catalysts that can produce severe downside gaps.

Failure Modes

• Building structure without satisfying call-side credit constraint.
• Misreading it as "safe" because upside is capped while ignoring left tail.
• Concentrating too many jade lizards in correlated names.

Practical Checklist

• Is downside assignment genuinely desired at effective basis $K_p - C$?
• Does credit fully offset call-spread width?
• Is downside tail risk sized for portfolio-level stress events?