Reverse Jade Lizard

Use reverse jade lizard when you're bearish or neutral-bearish on a stock. Jade lizard is for bullish-to-neutral views. If you expect a stock to decline or stay flat with strong resistance above, reverse jade lizard eliminates downside risk while collecting premium. Choose based on your directional outlook.

If the stock stays between your short call and short put strikes through expiration, all options expire worthless and you keep the full credit. This is the ideal outcome - maximum profit with the stock going nowhere.

Yes, generally. Put assignment means you own shares at a price you chose - you can sell covered calls and continue the wheel. Call assignment means you're SHORT shares - this creates ongoing margin requirements, potential dividend liability, and continued unlimited upside risk until you cover.

No. Avoid stocks that are takeover targets, have activist involvement, or are prone to positive gap surprises. The unlimited upside risk means a takeover announcement could cause catastrophic losses. Stick to stable, large-cap stocks with clear resistance levels.

If your credit doesn't exceed the put spread width, you have downside risk like a regular short strangle. The entire point of the reverse jade lizard is eliminating ONE side of risk. Without proper credit structure, you're taking unlimited risk on BOTH sides - much worse than intended.

Monitor call positions as ex-dividend approaches. If call is ITM and time value < dividend, early assignment is likely. Close or roll the call 2-3 days before ex-date. If time value > dividend, assignment is unlikely but not impossible. For high-dividend stocks, be extra cautious.

Add the call wing when call delta exceeds 0.30 or when you become concerned about upside catalysts. The cost is reduced net credit, but you gain defined risk. If entering during uncertain times, consider starting with the wing. Dynamic addition captures more premium on average.

Volatility skew works against reverse jade lizard. OTM calls have lower IV (less premium), while OTM puts have higher IV (more expensive protection). Jade lizard benefits from selling expensive puts and buying cheap calls. Reverse jade lizard sells cheap calls and buys expensive puts.

The put spread remains as a separate position. You now have: (1) Short stock from call assignment, (2) Bull put spread. These are independent. Manage the short stock position and the put spread separately. The put spread may even profit if the stock then drops.

Yes. Roll the call up (higher strike) for credit to increase breakeven. Roll out (later expiration) for credit to give more time. You can also roll the entire structure. Never roll for a debit unless converting to iron lizard. Sometimes closing is better than rolling.

Find where call premium is highest relative to ATM (flattest call skew). Check put skew to minimize the long put cost. Term structure should favor your expiration. Calculate edge: (Call IV - ATM IV) shows if calls are 'cheap' or 'fair'. Enter when call skew is flatter than typical.

Filter for: A-VIX stable or declining (avoid rally modes), market not in strong uptrend (SPY/XJO below 20-day MA or flattening), no sector rotation into your stocks' sector. Avoid entry during 'risk-on' sentiment shifts when correlations spike upward.

Model under correlation = 1 rally scenario. Calculate aggregate call exposure at +2 and +3 standard deviation up moves. Include potential margin calls at peak stress. Assume bid-ask spreads widen during rallies (harder to close). Size based on survivable worst-case, not average.

Reverse jade lizard collects more premium than a naked call alone (adds put spread premium). This extra premium provides breakeven cushion on the upside without adding downside risk (if structured correctly). You're paid more for the same upside risk. The trade-off is complexity and multiple legs.

Use jade lizards on stocks you're bullish on, reverse jade lizards on bearish stocks. This creates natural hedging - if market rallies, jade lizards profit while reverse jade lizards lose, and vice versa. Monitor aggregate delta across all positions. Target near-zero portfolio delta for true neutral.