Jade Lizard: how the position works

Sell an out-of-the-money put and an out-of-the-money call spread above the market. Its defining property is a construction rule rather than a shape: if the total credit collected is at least the width of the call spread, the position has no upside risk at all. That leaves a single risk — the underlying falling — which is precisely the risk somebody willing to own the stock is already comfortable with.

Market view: Neutral to bullish — income
Opened for: Credit
Maximum profit: The total credit, kept if the underlying finishes between the short put and the short call.
Maximum loss: K_p − total credit on the downside, approached as the underlying falls toward zero. On the upside the loss is zero provided the credit rule holds.
Breakeven: K_p − total credit on the downside. There is no upside breakeven when credit ≥ w.

How it is built

Sell 1 out-of-the-money put at K_p
Sell 1 call at K_c and buy 1 call at K_c + w above the market
Choose strikes so the total credit ≥ w

All figures above are quoted per share and settle at expiry. A standard equity option covers 100 shares, so multiply by 100 for a single contract.

Before expiry: the Greeks

Net long delta from the short put, short vega, positive theta. The asymmetry is the whole design: the call spread is financed to be risk-free at expiry, so all of the position's exposure is concentrated below the market where the trader has deliberately chosen to take it.

When to use it

On an underlying you would be content to own at the short put strike, when implied volatility is high enough that the credit covers the call spread width. It is a way to be paid more than a cash-secured put pays without adding upside risk to a position you may want to keep.

What goes wrong

The credit rule is a constraint you must verify, not a property that comes free. If the total credit is less than the call spread width, the upside risk is real and the structure has lost its point.
Downside risk is large and only nominally capped — a fall to zero costs the strike less the credit, exactly like a cash-secured put.
Assignment on the short put leaves you long stock, so the capital to hold it has to be there.

A worked example

NVDA at 175, 35 days out. Sell the 160 put for 3.10, sell the 190 call for 2.45, buy the 195 call for 1.30.

Total credit received: $4.25 per share — $425
Call spread width: $5.00 (195 − 190)
Credit rule: 4.25 < 5.00 — NOT satisfied, so $75 of upside risk remains
Maximum profit: $425, between 160 and 190
Downside breakeven: $155.75 (160 − 4.25)

Commissions, exchange fees, financing and the bid/ask spread are excluded. On a multi-leg position the spread is usually the largest of these. This example deliberately fails the credit rule to show what that looks like: widen the put strike or narrow the call spread until the credit covers the width.

Common questions

What makes it "no upside risk"?

If the underlying finishes above the long call, the call spread loses exactly its width. When the credit collected is at least that width, the loss is fully paid for in advance and the worst upside outcome is breakeven or better.

Related strategies

Educational only. This page explains how a structure behaves; it is not a recommendation to trade it. Options and futures carry substantial risk, and short and leveraged positions can lose more than the amount originally invested.