Twisted Sister

What is a Twisted Sister?

A twisted sister is a neutral-to-slightly-bullish premium selling strategy. It is essentially a short strangle (sell an OTM put and sell an OTM call) with a long call added further out of the money. That long call caps your upside risk, leaving you with undefined risk only on the downside.

The name is playful, but the strategy is practical. It is a close cousin of the jade lizard. In both strategies, you collect premium from two sides and eliminate (or limit) risk on one side. The twisted sister specifically buys a call to define the upper risk, creating a bear call spread on top of a short put.

How to Set It Up

Sell 1 OTM put below the current price
Sell 1 OTM call above the current price
Buy 1 further OTM call above the short call
All same expiration
Strike selection: The short put at a level where you would buy the stock. The short call at a level you do not expect the stock to reach. The long call 3-5 points above the short call.
Expiration: 30-45 days for optimal theta decay.
Key condition: Ideally, the credit received is greater than or equal to the width of the call spread. This eliminates all upside risk.

If the total credit exceeds the call spread width, you have no upside risk at all — identical to a jade lizard.

When to Use This Strategy

Use a twisted sister when:

You are neutral to mildly bullish
Implied volatility is elevated (rich premiums)
You want to collect premium from both sides of the market
You want to cap or eliminate upside risk
You are comfortable with naked put risk on the downside

The twisted sister is popular with premium sellers who want the income of a strangle but are nervous about a short squeeze or surprise rally blowing up the short call.

Example Trade

Stock XYZ is trading at $100. IV is elevated.

Sell 1 XYZ $93 put for $2.00
Sell 1 XYZ $107 call for $1.50
Buy 1 XYZ $112 call for $0.50
Net credit: $2.00 + $1.50 - $0.50 = $3.00 ($300 collected)
Call spread width: $112 - $107 = $5.00

Since the $3.00 credit is less than the $5.00 call spread width, there is $200 of upside risk. If you can find strikes where the credit exceeds $5.00, the upside risk is eliminated entirely.

If XYZ stays between $93 and $107: All options expire worthless. You keep the $300.

If XYZ drops to $85: The put is worth $8 (you owe $800). The calls expire worthless. Loss: $800 - $300 = $500.

If XYZ rallies to $115: The call spread maxes out at $5 cost. The put expires worthless. Loss: $500 - $300 = $200. Upside risk is capped.

If XYZ rallies to $150: Same as above. The call spread still costs only $5. Your loss on the upside is still $200. The long call saved you from disaster.

Risk and Reward

Max profit: Net credit received. $300. Achieved when the stock stays between the short put and short call.
Max loss: On the downside, (put strike - credit) x 100 = ($93 - $3) x 100 = $9,000 if the stock goes to zero. On the upside, (call spread width - credit) x 100 = ($5 - $3) x 100 = $200.
Breakeven: Put strike - credit = $93 - $3 = $90 on the downside. On the upside, the call spread defines a narrow loss zone.

The asymmetry is the key feature: capped upside risk, undefined (but manageable) downside risk.

Tips and Common Mistakes

Try to get the credit to exceed the call spread width. This is the sweet spot — zero upside risk, free call protection.
Manage the short put like any naked put. If the stock approaches the short put strike, close or roll.
Close at 50% of max profit. Do not get greedy waiting for the full credit.
Avoid through earnings. A gap down destroys the trade just like any naked put strategy.
Compare to the jade lizard. They are essentially the same trade. The twisted sister name is just a variation traders use.

Related Strategies

Jade Lizard — very similar: short put + bear call spread
Short Strangle — the base strategy without the protective call
Iron Condor — adds a long put for defined risk on both sides