Long Call Ladder Strategy is an extension to Bull Call Spread Strategy. A trader will be slightly bullish about the market, in this strategy but bearish over volatility. It involves buying of an ITM Call Option and sale of 1 ATM & 1 OTM Call Options. However, the risk associated with this strategy is unlimited and reward is limited.
Strap Strategy is similar to Long Straddle, the only difference is the quantity traded. A trader will buy two Call Options and one Put Options. In this strategy, a trader is very bullish on the market and volatility on upside but wants to hedge himself in case the stock doesn’t perform as per his expectations. This strategy will make more profits compared to long straddle sin ..
Profit Achieved When Price of Underlying > Strike Price of Calls/Puts + (Net Premium Paid/2) OR Price of Underlying < Strike Price of Calls/Puts - Net Premium Paid
Risk Profile
Unlimited
Max Loss Occurs When Price of Underlying = Strike Price of Calls/Puts
Breakeven Point
Upper Breakeven Point = Total Strike Prices of Short Calls - Strike Price of Long Call - Net Premium Paid, Lower Breakeven Point = Strike Price of Long Call + Net Premium Paid
Strike Price of Calls/Puts + (Net Premium Paid/2)
LONG CALL LADDER Vs STRAP - When & How to use ?
LONG CALL LADDER
STRAP
Market View
Neutral
Neutral
When to use?
This Strategy is an extension to Bull Call Spread Strategy. A trader will be slightly bullish about the market, in this strategy but bearish over volatility.
This strategy is used when the investor is bullish on the stock and expects volatility in the near future.
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
Buy 2 ATM Call Option, Buy 1 ATM Put Option
Breakeven Point
Upper Breakeven Point = Total Strike Prices of Short Calls - Strike Price of Long Call - Net Premium Paid, Lower Breakeven Point = Strike Price of Long Call + Net Premium Paid
Strike Price of Calls/Puts + (Net Premium Paid/2)
LONG CALL LADDER Vs STRAP - Risk & Reward
LONG CALL LADDER
STRAP
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
UNLIMITED
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Net Premium Paid
Risk
Unlimited
Limited
Reward
Unlimited
Unlimited
LONG CALL LADDER Vs STRAP - Strategy Pros & Cons
LONG CALL LADDER
STRAP
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Strip, Short Put Ladder, Short Call Ladder
Disadvantage
• Unlimited risk. • Margin required.
• To generate profit, there should be significant change in share price. • Expensive strategy.
Advantages
• Reduces capital outlay of bull call spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.
• Limited loss. • If share prices are moving then traders can book unlimited profit. • A trader can still book profit if the underlying falls substantially.
