Name: Christmas Tree Butterfly w/ Calls
Setup: Buy (long) Strike A call and Sell (short) 3 Strike C calls and Buy (long) 2 Strike D calls
Bias: Slightly Bullish
Break-Even: Two break-even points:
- Strike A + Debit paid
- Strike D – ½ Debit paid
Max Profit: Limited: Strike C – Strike A – Debit paid
Max Loss: Limited: Debit paid
Margin: No margin required
Time Decay: Time decay is your friend as you want all options except Strike A to expire worthless.
Implied Volatility: After the underlying reaches Strike C you want volatility to decrease. A decrease here will increase the value of your position, and also decrease the chance you will see a big move outside Strike C.
Notes: None at this time
Featured in Trade Review: None at this time