Reverse Jade
Lizard
Selling an OTM call against an OTM put spread for a single net credit — engineered so a big enough credit removes all downside risk, leaving only an open upside on NSE.
What is a reverse jade lizard?
A reverse jade lizard is the mirror image of the jade lizard: you sell one out-of-the-money call option, and on the other side you sell an out-of-the-money put spread — selling a put and buying a lower put to cap the put-side risk. Everything is sold for a single net credit, and the structure has a matching property: if that credit is at least as large as the width of the put spread, the trade has no downside risk at all.
The cost of that protected downside is a naked short call. You pocket rich premium and a crash cannot hurt you, but a sharp rally above the call strike exposes you to open-ended losses, only partly offset by the credit. It is a neutral-to-mildly-bearish income trade for premium sellers who want the downside completely switched off.
Key takeaways
- A reverse jade lizard is short OTM call + short OTM put spread, all for one net credit.
- If the credit ≥ put-spread width, the trade has no downside risk whatsoever.
- The remaining risk is to the upside, from the naked short call.
- Maximum profit is the full net credit, kept if price stays between the two short strikes.
- It is neutral-to-mildly-bearish — you want price flat, drifting, or falling.
How a reverse jade lizard works
Picture three strikes. Up top sits the short call; low down sit the short put and, below it, the long put that defines the put spread. As long as the underlying expires between the short put and the short call, every option expires worthless and you keep the entire credit. Below the short put, the put spread starts to lose — but its loss is capped at the spread width, and because you collected a credit larger than that width, even a deep fall leaves you net flat or ahead. The credit pre-pays the put spread's maximum loss; the downside is sealed.
In Indian F&O the trade is helped by theta decay and falling implied volatility, since you are net short premium. The naked short call means the exchange blocks SPAN + exposure margin and that margin can expand as price rises. NIFTY and other index options are cash settled, so the short call carries no delivery; single-stock legs can face physical settlement. The build rule mirrors the jade lizard — choose strikes and put-spread width so the total credit is at least that width.
The numbers that matter
Worked NIFTY example
Suppose NIFTY is near 22,500 and you are mildly bearish-to-neutral into expiry. You sell the 22,800 call for ₹120, sell the 22,200 put for ₹90 and buy the 22,100 put for ₹50. The put spread is 100 points wide; your net credit is 120 + 90 − 50 = ₹160, comfortably above the 100-point width — so there is no downside risk. With a lot size of 75, the maximum profit is ₹160 × 75 = ₹12,000 (illustrative figures):
| NIFTY at expiry | Outcome | P&L (1 lot) |
|---|---|---|
| 21,500 | Put spread maxed, credit covers | +₹4,500 |
| 22,200 | Put spread at short strike | +₹12,000 |
| 22,500 | All legs expire worthless | +₹12,000 |
| 22,960 (breakeven) | Call loss = credit | ₹0 |
| 23,500 | Short call deep ITM | −₹40,500 |
Look at the top row versus the bottom: a deep crash still leaves you green because the ₹160 credit exceeds the 100-point spread. The only place you bleed is far above 22,960, where the naked call runs open-ended.
When to use a reverse jade lizard
- You are neutral-to-mildly-bearish and confident the underlying will not spike up.
- Implied volatility is elevated, fattening the call and put premiums you sell.
- You want one side of risk completely removed — here, the downside.
- You can size the legs so the net credit reliably clears the put-spread width.
Risks to respect
- Upside gap risk: a sharp rally above the call strike produces open-ended losses, only cushioned by the credit.
- Margin on the naked call: SPAN + exposure margin can expand as the underlying rises, forcing a top-up.
- Assignment: an in-the-money short call can be assigned, leaving a cash or delivery obligation.
- Volatility spikes: a jump in IV inflates the short call's value and the mark-to-market loss before expiry.
Reverse jade lizard vs jade lizard
The jade lizard keeps a naked put and caps the call side, removing upside risk for a neutral-to-bullish view. The reverse jade lizard flips it: a naked call with a capped put side, removing downside risk for a neutral-to-bearish view. Pick the jade lizard when you fear a fall less than a rally; pick the reverse when you fear a rally less than a fall. Same engineering, opposite directional lean.
Reverse jade lizard vs short strangle
A short strangle sells a naked put and a naked call, leaving open risk on both sides. The reverse jade lizard keeps the same short call but replaces the naked put with a capped put spread sized so the credit erases downside risk entirely. You sacrifice a little put premium to be immune to any crash — a strictly safer way to express the same income view on the put side.
Why is it called a reverse jade lizard?
It simply reverses the original jade lizard — swapping the short put for a short call and the short call spread for a short put spread. The whimsical “jade lizard” name carries no deeper meaning; the “reverse” prefix is the standard options convention for the mirror-image build, just as a reversal mirrors a conversion.
Frequently asked questions
What is a reverse jade lizard?
A short OTM call combined with a short OTM put spread, all for a net credit. When the total credit is at least the width of the put spread, the position carries no downside risk.
Why does a reverse jade lizard have no downside risk?
If the total credit is greater than or equal to the put-spread width, the credit fully covers the put spread's maximum loss, so even a deep fall cannot produce a net loss on the downside.
Where is the risk in a reverse jade lizard?
On the upside, from the naked short call. A large rally above the call strike produces open-ended losses, only partly cushioned by the credit collected.
Is a reverse jade lizard bullish or bearish?
Neutral-to-mildly-bearish. It profits when the underlying stays below the call strike — rangebound, drifting down, or falling — and is hurt only by a sharp rally.
The bottom line
The reverse jade lizard is the bearish twin of the jade lizard: a capped put spread funded by a naked call, sized so the credit erases all downside risk. What remains is a clean neutral-to-bearish income trade whose only enemy is a sharp rally. Sell it when volatility is rich and you have a level above which you do not expect price to break — and always confirm the credit clears the put-spread width before you click.
Build a reverse jade lizard with the credit rule checked
Use TradePulse's strategy builder to confirm the credit beats the put-spread width and watch breakeven, margin and payoff update live on real NSE data.
Related strategies & terms
- Jade Lizard — the mirror with no upside risk.
- Short Strangle — the two-sided naked version with open downside risk.
- Bear Call Spread — a defined-risk way to express the same bearish call view.
- Naked Option · SPAN Margin · Theta