A Twisted Sister sells an out-of-the-money call and a Bull Put Spread on the same underlying, using one expiration. It is also known as a Reverse Jade Lizard. The position collects a net credit and earns its largest profit between the two short strikes. Its short call remains uncovered, so a large rise can produce unlimited losses.
Names and related structures: Reverse Jade Lizard; short call with Bull Put Spread.
Market Outlook
The outlook is neutral to mildly bearish. The trader wants the stock to remain below the short call, preferably between the short put and short call at expiration. Falling prices reduce the profit on the put spread. Whether a large decline causes a net loss depends on the credit collected for the entire position.
Position Construction
Buy one lower-strike put, sell one higher-strike put and sell one call above the short put. Use equal quantities and the same expiration. The two puts form the Bull Put Spread; the short call provides extra premium but has no Protective Call above it.
| Action | Option | Expiration | Premium |
|---|---|---|---|
| Buy 1 | $92 put | Same expiry | $0.50 |
| Sell 1 | $96 put | Same expiry | $2 |
| Sell 1 | $104 call | Same expiry | $3 |
Example
Suppose XYZ trades at $100. Buy the $92 put for $0.50, sell the $96 put for $2 and sell the $104 call for $3. The net credit is $2 + $3 − $0.50 = $4.50 per share, or $450 for one position. At $100, all three options expire worthless and the $450 credit is retained. At $90, the long put is worth $200 and the short put costs $600 to settle. The call expires worthless, leaving $450 − $400 = $50 profit. At $115, the puts expire worthless but the short call costs $1,100 to settle, producing a $650 net loss.
All amounts use a 100-unit contract multiplier and exclude commissions and fees. These prices illustrate the arithmetic; they are not current market quotes.
Payoff Diagram
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| Underlying price | Expiration P/L |
|---|---|
| $0 | $50 |
| $90 | $50 |
| $92 | $50 |
| $96 | $450 |
| $100 | $450 |
| $104 | $450 |
| $108.50 | $0 |
| $115 | −$650 |
Maximum Profit
Maximum profit is the opening net credit: $450 in this example. It is earned when XYZ finishes from $96 through $104 at expiration, so all three options have zero intrinsic value. One position represents 100 shares; additional positions scale the dollar result.
Maximum Loss
Maximum loss is unlimited because there is no upper limit to the stock price and the short call is uncovered. Above the upper breakeven, each additional $1 rise adds $100 of loss per position. On the downside, the put spread can lose at most its $4 width before the opening credit is included. The $4.50 credit covers that amount and leaves $50 profit at $92 or below, before costs.
Breakeven Point(s)
The upper breakeven is the short call strike plus the total credit per share: $104 + $4.50 = $108.50. There is no lower breakeven in this example because the credit exceeds the $4 put-spread width. If the same strikes instead collected only $2, the lower breakeven would be $96 − $2 = $94 and the upper breakeven would be $104 + $2 = $106. That smaller credit would leave a $200 loss at $92 or below.
Twisted Sister and Reverse Jade Lizard
These are two names for the same three-leg structure, not two different payoffs. A Jade Lizard uses a short put and a Bear Call Spread instead, putting the uncovered exposure on the other side. An Iron Condor buys protection beyond both short strikes. Buying an additional higher-strike call would cap the Twisted Sister’s upside loss, but would also reduce its credit and change the position into an Iron Condor.
Risks and Position Management
The put wing does not protect against a rally. A short call assignment can create a short stock position, with borrowing costs and dividend obligations; a short put assignment can require buying shares. Broker margin and assignment funding can exceed the quoted premium. The “no downside loss” description applies only to the combined expiration payoff when the credit covers the put-spread width, before costs. It does not prevent interim losses, early assignment or unlimited upside loss. Closing or rolling one leg changes the remaining risk.
Before expiration, option prices also reflect time remaining and volatility. The expiration diagram does not show every interim gain or loss. Trading costs reduce profits and increase losses. Review the contract’s exercise and settlement rules before trading.
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Related Strategies
Structure reference: Strategy reference. Example premiums and calculations are illustrative. Editorial standards.
Advanced Strategy Variations
Build on the core strategies with these less common structures. Match the option legs and expirations when comparing names.