An unbalanced spread using three different strikes. Named for its payoff diagram shape resembling a Christmas tree. Creates a directional position with premium income.
Variable — best at first short strike
Unlimited above highest strike if not properly hedged
Varies
Long 1 ATM Call + Short 1 OTM Call + Short 1 further OTM Call (unbalanced)
Variable profit and risk. Directional bias. Requires more active management.
When you have a moderate directional view and want to reduce cost. More advanced — requires careful management due to unbalanced nature.