Strategy Overview
High RiskAdvancedNeutral
A Christmas Tree (Ladder) is a modified butterfly spread with asymmetric wings. You sell options at multiple strikes to collect premium while buying protection at one level. It profits when the stock stays near the short strikes.
Max Profit
Net premium received
Max Loss
Unlimited beyond unprotected wing
Breakeven
Short strikes ± net premium received
Probability
~55% win rate
hist. est.
This strategy has unlimited downside risk. Use strict risk management.
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Example Setup Calculator
$
Credit Received
$400
Max Profit
$400
Max Loss
Unlimited
Breakeven
$96.00 / $104.00
Strategy Components
SELL ATM CALL
Sell 1 ATM call
SELL OTM CALL
Sell 1 OTM call
BUY OTM CALL
Buy 1 further OTM call (protection)
When to Use
- You expect the stock to stay near current price
- IV is elevated for better premiums
- You want more premium than a standard butterfly
- You are comfortable with some undefined risk
Best Market Conditions
- High IV rank
- Range-bound or slightly bearish market
- Post-catalyst consolidation expected
Best Practices
- Ensure you understand the asymmetric risk profile
- Have a clear stop-loss if stock moves beyond short strikes
- Target 30-45 DTE for optimal decay
- Manage at 50% of max profit
Ready to Trade?
Review Christmas Tree and practice it in paper trading with the school workflow.
Paper Trading