Christmas Tree
Enhanced ratio spread with multiple shorts
Positions in Chart: Buy 1 lot of 25800 CE + Sell 3 lots of 26000-26400 CE. Spot price: 25800
Setup
Buy 1 ATM Call + Sell 3 higher strike OTM Calls
When to Use
- Professional income generation
Market Outlook
Risk & Reward
Strategy Details
Description
A Christmas tree is a sophisticated income-generating strategy that combines ratio spreads with enhanced premium collection, designed for professional traders with moderate bullish outlook and strong conviction about maximum price levels. This strategy involves buying one at-the-money call and selling three out-of-the-money calls at higher strikes, creating a unique payoff profile that maximizes income while maintaining limited upside participation. The strategy works best when implied volatility is elevated and expected to decline, allowing traders to collect substantial premium from the three short calls. Risk management is crucial as the strategy has unlimited loss potential above the highest short strike
Example
If NIFTY is at ₹25,800, set up: Buy ₹25,800 Call for ₹120, Sell three ₹26,200 Calls for ₹60 each, collecting ₹60 net credit with maximum profit of ₹460 if NIFTY closes at ₹26,200, but unlimited risk above ₹26,660.
This information is for educational purposes only and should not be considered as financial advice. Always consult with a qualified financial advisor before making investment decisions. Data is constructed and is not actual. Calculations may have errors.
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