Bring 4 cups water or stock to a simmer in a saucepan; slowly whisk in 1 cup grits to avoid lumps.
Simmer grits gently, stirring frequently, until thickened (15–20 minutes for stone-ground; follow package for quick grits).
Stir in 1 cup milk or cream, 1 tbsp butter, and 1/2 cup grated cheddar (if using); season with salt and pepper and keep warm.
Crisp bacon in a skillet over medium heat if using; remove and reserve the fat.
Add 2 tbsp olive oil and 1 tbsp butter to the skillet with reserved bacon fat; sauté onion and bell pepper until softened.
Add minced garlic, smoked paprika, cayenne, and Old Bay; cook 30 seconds until fragrant.
Add shrimp in a single layer and cook 1–2 minutes per side until pink and opaque.
Squeeze lemon over the shrimp, stir in chopped parsley or green onions, and crumble bacon back into the skillet if desired.
Spoon creamy grits into bowls and top with the sautéed shrimp and pan sauce.
Garnish with extra parsley, cracked black pepper, and a drizzle of olive oil or hot sauce to taste; serve immediately.