Christmas Tree
The Christmas Tree spread is a type of ratio spread that involves three strike prices, and it gets its name because the profit/loss graph can resemble a decorated Christmas tree.
Comparison with Symmetrical Spreads:
Unlike more symmetrical strategies like butterflies or condors, the Christmas Tree spread has an asymmetrical setup, contributing to its unique graphical representation.
Comparison with Butterfly and Condor Spreads
Christmas Tree spreads are akin to butterfly spreads, utilizing multiple vertical spreads. However, they distinguish themselves by skipping one of the strike prices.
- Directional Bias: This skipping of a strike price introduces a directional bias, differentiating the Christmas Tree from more neutral strategies like condors or butterflies.
Like, In a condor spread with 45300, 45400, 45500, and 45600 strikes, a Christmas Tree would use 45300, 45500, and 45600 strikes, omitting the 45400 strike.