Name: Christmas Tree Butterfly w/ Puts
Setup: Buy (long) 2 Strike A puts and Sell (short) 3 Strike B puts and Buy (long) Strike D put
Bias: Slightly Bearish
Break-Even: Two break-even points:
- Strike A + ½ Debit paid
- Strike D – Debit paid
Max Profit: Limited: Strike D – Strike B – 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 D to expire worthless.
Implied Volatility: After the underlying reaches Strike B 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 B.
Notes: None at this time
Featured in Trade Review: None at this time