Christmas Tree Options Strategy Definition?
Christmas Tree Options Strategy Definition?
The christmas tree trading strategy basically refers to a type of trading strategy which is known with options trading, just like how other financial markets have their own trading strategies, the christmas tree trading strategy falls under the options trading. In the most direct break down to what the trading concept is all about, the name was generated from the look alike which the trading strategy has with the known christmas tree. It allows that trader buys as well as sell options with same expiration date, and of course the aim of it is to make profit. The break down of the usage requires that a trader first of all buying and sell either six put or call option with different market strike price but falls under the same expiration date. This way, the strategy is able to generate profit for traders in most cases where the result of the underlying financial asset is a little bullish.
The Christmas tree name comes from the strategy's very loose resemblance of a tree when viewed on an options chain display. A Christmas tree spread with puts is an advanced options strategy that consists of three legs and six total options. This strategy pays off with a neutral to slightly bullish outcome in the underlying security. The option strategy involves buying one put at strike price D, skipping strike price C, selling three puts at strike price B, and then buying two puts at strike price A. Ideally, you want the options at strike C and D to expire worthless, while retaining maximum value for the long call at strike A. Christmas trees can be constructed with either all calls or all puts, and may be structured as either long or short.
The term Christmas tree strategy arises due to the appearance that the strategy have when it is veiwed on the trading platform or on the option chain display. It has the appearance of a Christmas tree.
The Christmas Tree strategy is mainly used in options trading. In this trading strategy, the trader leverage on buying and selling of six call options or six put options, at the same time which has different strikes but all have the same date of expiration.
The Christmas tree strategy may be constructed using all put options or all call options and its structure can either be long or short. When this strategy is properly maximized, very good profits can be made from it.
A Christmas tree is a strategy that is very powerful and useful in option trading by buying and selling different puts with the same expiration dates or time. The Christmas tree strategy involves the use of six put with different strikes. The Christmas tree strategy is one of its kind in the option market. The name Christmas tree was derived from the image the strategy created when viewed in the options chain display. The financial market are full slangs and funny names that make many wonder how come all this. The names don't really count as long the message the strategy or anything in the same shoe is trying to convey is understood.
A Christmas tree strategy is an options trading spread strategy accomplished through acquisition and selling six call options with multiple strikes however the same maturity dates for a neutral to bullish projection. This is regarded as a long call Christmas tree when making use of calls. This strategy is basically the addition of a long vertical speed and two short vertical spread. The Christmas tree nomenclature was gotten from the strategy’s look to a Christmas tree when looked on an option’s chain view. The strategy is quite like the butterfly spread in the sense that they both make use of the multiple vertical spreads to box in an anticipated outcome. Differentiates the two spreads is that one of the spreads jumps a strike price, which brings about a directional factor.
A long christmas tree spread with calls is a three part strategy involving six calls. If there are four strike prices, A B C and D with A being the lowest, a long christmas tree spread with calls is created by buying one call at strike A, skipping strike B, selling three calls at strike C and buying two calls at strike D. All calls have the same expiration date, and the four strike prices are equidistant. One 95 call is purchased the 100 strike is skipped, three 105 calls are sold and two 110 calls are purchased. The position is established for a net debit, and both the potential profit and maximum risk are limited. This is an advanced strategy because costs are high.
Christmas tree options strategy is becoming quite popular among the investors and traders because it is believed that it is one of the most effective strategies in the now.This strategy allows a trader to buy and sell options at the same at the same time.It is designed like a tree whereby there are three legs of of six options.The options are also to be of the same expiration date (when it is possible to be of different strike price).It is more applicable in the case where the asset's direction is bullish.This is however similar to hedging in forex trading but the bottom line is that it allows traders to make profit easily if well mastered and applied correctly among other strategies