← Strategy LabLesson 39 · 5:06
Christmas tree butterfly
Summary
A Christmas tree butterfly suits a view that XYZ rises a little, to about $105. You pay $293 and can make up to $707 if XYZ ends at $105; you lose the full $293 below $95 or above $110. You break even at $97.93 and at about $108.53.
Key terms
- Christmas tree butterfly
- A butterfly built one, three, two: buy one call, skip a strike, sell three calls, buy two calls higher still, so its tent leans toward a small rise.
- ladder butterfly
- Another name for the Christmas tree butterfly.
- one, three, two build
- skipped strike
- A strike left out of a build, here $100, which makes one spread twice as wide as the other.
- lopsided tent
- assignment
- When a buyer exercises and you, as the seller of that option, must deliver.
Check yourself
Answer each question to see why the right answer is right.
1. What does the one, three, two build of the lesson's Christmas tree butterfly look like?
2. XYZ ends at $100 on the last day. What is your result?
3. XYZ rallies strongly and ends at $110. What happens?
4. Where is the lower break-even?
5. Why does the lesson say to watch the right side of the chart?
Finished the video and the quiz? .