A Christmas tree spread that involves the selling of one put option at the highest exercise price and the purchase of another put at each of the lower exercise prices. In other words, this position is established by combining a high exercise short put and one lower exercise long put and another long put at an even lower exercise price. For example, an investor may sell one USD 80 put and at the same time buy one USD 75 put and another put at USD 70. The maximum gain from such a Christmas tree is limited and can be measured, if executed for credit, as the difference between the lowest exercise put and the maximum loss (which arises if the underlying lies between the strikes of the two long options at expiration). However, if the spread is executed for debit, the maximum loss is equal to the difference between the short exercise and the first long exercise plus the debit.
As Christmas trees are typically delta neutral, this strategy is also neutral with limited upside risk potential if executed for debit.
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