What is a Jade Lizard?
A jade lizard is a bear put spread combined with a short call. The short call strike is above the highest strike of the put spread.
Structure
- Buy put: Lower strike (e.g., 24,000)
- Sell put: Higher strike (e.g., 24,500)
- Sell call: Above highest put (e.g., 25,000)
Example
NIFTY at 24,500. Create jade lizard:
- Buy 24,000 put for Rs 200
- Sell 24,500 put for Rs 350
- Sell 25,000 call for Rs 150
- Net credit: Rs 300
P&L Scenarios
- NIFTY stays between 24,000-24,500: Max profit Rs 300
- NIFTY below 24,000: Loss capped at Rs 200
- NIFTY above 25,000: Unlimited risk from call
When to Use
- Market outlook: Neutral to slightly bullish
- Volatility: High IV environment
- Timeframe: 30-45 days to expiry
SEBI Disclaimer
Options trading involves substantial risk of loss. This article is for educational purposes only.
The Unusual Structure of a Jade Lizard
The jade lizard is a three-legged options strategy that combines the range of a bullish position with an unusual property: a defined region of the downside where loss is entirely absent. It is built by selling a put, selling a call and buying a further-strike call above the sold one, all with the same expiry. The sold call plus the bought higher call form a bearish call credit spread, while the sold put is left naked, and together the legs create a net credit that can eliminate the loss from a falling market entirely.
What makes the jade lizard distinctive is that if the market stays at or above the put strike, all the risk evaporates. Because the credit from collecting both the sold put and the sold call more than pays for the bought call, the trader is left with a position whose maximum loss, were the market to fall, is overlaid by a credit large enough to cover the distance to the put strike. In the region where a bull put spread would lose, the jade lizard can break even or profit.
The Three Legs in Terms of Market View
- Sell a put: expresses a view that the market will not fall far, collecting premium.
- Sell a call: expresses a view that the market will not rally hugely, collecting more premium.
- Buy a higher call: caps the risk of the sold call, turning it into a credit spread.
Why the Downside Is Capped
In an ordinary bull put spread, a sharp fall pushes the position into a loss once the market breaks below the sold put. In the jade lizard, that loss is offset by the credit received: because the net credit equals or exceeds the distance from the current price down to the put strike, a modest decline is absorbed with no net loss. This is the strategy's signature, a region of measure where the position simply does not lose money, which is why it appeals to a trader who is bullish but wants defined protection on the downside.
The Upper Side and Its Cap
Upside profit in the jade lizard runs from entry up to the sold call strike, at which point the position profits by the full credit for a modest rise, but beyond the sold call the position's gain is capped because the bearish call spread is in profit while the underlying rally also hurts nothing further. In fact, above the bought call strike the payoff flattens to a fixed profit. The strategy monetises a modest bullish drift while capping both the downside and the extreme upside, a profile suited to a view that the market rises slowly but not explosively.
Setting Up a Jade Lizard on Nifty
Suppose Nifty trades at 24,000. Sell a put at 23,800 for 150, sell a call at 24,400 for 120 and buy a call at 24,600 for 70. Net credit is 200. If Nifty stays at or above 23,800, all options expire or settle such that the position keeps the credit, and the sold put's risk, were the market to fall, is covered by the 200 credit down to 23,800. Below that level the loss begins, but the credit shortens the effective risk distance, and the structure's known max profit is the credit for any settle between the two sold strikes.
Disciplines of Running a Jade Lizard
- Choose the puts and sold-credit levels so the net credit covers the intended downside to the put strike.
- Confirm the bullish-but-not-explosive view fits the structure before entering.
- Manage the naked put if the market turns sharply lower, rolling or adding protection.
- Take profits near the credit target rather than holding for the last rupee.
A Defined-Risk Guide for the Bullish Trader
The jade lizard is an elegant expression of a specific, moderate bullish view, offering credit and a protected downside in a single, defined structure. Its distinctive quality, a region where loss is overlaid by the collected credit, makes it attractive to a trader who wants upside participation without the naked-uncertainty of a falling market. Used with the right view and the discipline to manage the naked put in a genuine break, it demonstrates how a well-designed multi-leg position can turn a modest, directional expectation into a defined, protected payoff.
