Option Trading Lesson 2.8

What Is a Christmas Tree?

A Christmas tree is an options trading spread strategy achieved by buying and selling six call (or six put) options with different strikes but the same expiration dates for a neutral to bullish forecast. 

Long call Christmas tree when using calls options. 看升-聖誕樹

Long put Christmas tree when using put options. 看跌-聖誕樹

The strategy is also available long (bullish) or short (bearish).This spread is essentially the combination of a long vertical spread and two short vertical spreads.

The 1-3-2 structure supposedly appears as a tree. Time decay is on the holder's side, as the holder wants all options except the lowest to expire worthless.

For example, with the underlying asset at $100,

• Long Christmas Tree With Calls (LC 95x1, SC 105x3, LC 110x2) 傾向看升
• Long Christmas Tree with Puts (LP 105x1, SP 95x3, LP 90x2) 傾向看跌

Maximum profit equals middle strike minus higher strike minus the premium.

Maximum loss is the net debit paid for the strategy.

Short Christmas Tree with Calls (SC 95x1, LC 105x3, SC 110x2) 傾向看跌

Short Christmas Tree with Puts (SP 105x1, LP 95x3, SP 90x2) 傾向看升

The maximum profit is the net credit received.

留意commission 和手續費的開支，因為一次策略會牽涉六個期權 

Source: Investopedia