Christmas Tree
An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at different strike prices. When drawn structurally, the strike price of the long option is located below the two successively higher written calls and loosely resembles a Christmas tree. Investopedia Says:
This strategy is used when an investor believes the stock is going to make a move higher. It is a variation of the ratio spread, so a significant upward move in the stock price will result in a very large loss due to the extra short call. The staggered strike prices for the written calls in the Christmas tree strategy reduce the amount of loss incurred when the share price rises more than expected (unlike the ratio spread, where the call options have the same strike). Related Terms:
Call Option
Derivative
Exercise Price
Frontspread
Option
Ratio Spread
Strike Price |