An
investment strategy in which an
investor buys a
call option at a low
strike price and then uses the proceeds from that sale to
sell two call options at two different (but higher) strike prices. When one draws this strategy graphically, it vaguely resembles a Christmas tree. The calls have the same
underlying security or
asset; importantly, they must have the same
expiration date. If the underlying moves modestly in the direction the
trader wants, he/she can realize exceptional
profits; however, if the underlying moves away from the trader, he/she has the possibility to lose a great deal. The staggered strikes for the two call options the investor sells are intended to
hedge against loss in this situation.