Snapshot
Legs
Sell 1 OTM Call + Sell 1 OTM Put + Buy 1 Lower-Strike Put
Outlook
Neutral to Mildly Bearish
Max profit
Total net credit received
Max Loss
Unlimited
A reverse jade lizard option strategy combines selling an out-of-the-money call option with selling an out-of-the-money put spread (selling a higher put and buying a lower put). The key rule is collecting a total net credit that exceeds the width of the put spread. Traders use this strategy to generate income when neutral to slightly bearish.
Because the total credit received is greater than the put spread width, there is zero downside risk if the stock collapses. Maximum profit is the total credit collected if the stock closes between the short put and the short call. Upside risk is unlimited if the stock rallies past the short call strike price.
Example
Stock
$100
Trade
- Sell $110 Call for $4.00
- Sell $95 Put for $2.50
- Buy $90 Put for $0.50
→ $6.00 credit ($600)
Breakeven
$116.00 (Upside only)
Outcomes
- Stock between $95 and $110: +$600 Max Profit
- Stock ≤ $90: +$100 Profit (No Downside Risk)
- Stock > $116: Loss Zone (e.g., -$400 at $120)