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Jade Lizard Strategy

Strategy Type:

Moderately Bullish and Income-Generating

Components: The strategy involves two main components:

  • Short Put Option: The investor sells (writes) an out-of-the-money put option with a specific strike price.
  • Short Call Spread: Simultaneously, the investor sells (writes) an out-of-the-money call option with a higher strike price and buys a call option with an even higher strike price (creating a bear call spread). This limits potential losses on the upside.

Profit and Loss Potential:

  • Maximum Profit:The maximum profit is limited and occurs if the underlying asset's price rises and remains above the strike price of the short call option. The profit is capped at the premium received from selling the put and the call spread.
  • Maximum Loss:The maximum loss is limited and occurs if the underlying asset's price falls significantly below the strike price of the short put option. The loss is limited to the difference between the strike price of the short put and the short call option minus the net premium received.
Break-Even Point: There are multiple break-even points based on the specifics of the options used. These points can be calculated based on the strike prices of the options.

Strategy Goals:

  • The primary goal of a Jade Lizard is to generate income by collecting premiums from selling the put and the short call spread while also providing some upside protection.
  • The strategy is suitable when an investor has a moderately bullish outlook on the underlying asset.

Risk Management:

  • The risk is limited to the difference between the strike prices of the short put and short call options, minus the net premium received. This defines the maximum loss.
  • The strategy offers controlled risk with limited profit potential.