Long Put Christmas Tree Spread

The Long Put Christmas Tree Spread is a strategy similar in structure to its call counterpart but designed for a different market outlook.

It typically involves three strike prices and is structured to profit from a moderate downward movement in the underlying asset’s price.

Here’s the structure of a traditional Long Put Christmas Tree Spread:

Structure (1-3-2):

  • Buy 1 ATM Put: Purchase one put option with an at-the-money strike.
  • Skip the Next Strike: Omit the immediate next lower strike.
  • Sell 3 Puts: Then sell three put options with the following lower strike.
  • Buy 2 Lower Puts: Finally, buy two more put options with the next lower strike after that.

Live Example

So, Let’s take a real example –

  1. Buy BANKNIFTY 45300PE at 252 – 1 Lot
  2. Sell BANKNIFTY 45100PE at 162.2 – 3 Lots
  3. Buy BANKNIFTY 45000PE at 127.9 – 2 Lots

This is a long put Christmas Tree spread.

The payoff graph looks like –

This is something one can do when you have too much OTM PE sell and fear that the market can flash crack! It gives sharp profit that time for a while

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