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.
This strategy is implemented by selling (short) the underlying asset in the cash/futures market. Simultaneously, sell ATM Puts double the number of long quantity. This strategy is used by a trader who in neutral on the market and bearish on the volatility in the near future. Here profits will be capped up to the premium amount and risk will be potentially unlimited. ..
Max Profit Achieved When Price of Underlying = Strike Price of Short Puts
Risk Profile
Unlimited
Loss Occurs When Price of Underlying < Strike Price of Short Put - Net Premium Received OR Price of Underlying > Strike Price of Short Put + Net Premium Received
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
Upper Breakeven Point = Strike Price of Short Puts + Points of Maximum Profit Lower Breakeven Point = Strike Price of Short Puts - Points of Maximum Profit
LONG CALL LADDER Vs RATIO PUT WRITE - When & How to use ?
LONG CALL LADDER
RATIO PUT WRITE
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 implemented by selling (short) the underlying asset in the cash/futures market. This strategy is used by a trader who in neutral on the market and bearish on the volatility in the near future
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
Sell 2 ATM 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
Upper Breakeven Point = Strike Price of Short Puts + Points of Maximum Profit Lower Breakeven Point = Strike Price of Short Puts - Points of Maximum Profit
LONG CALL LADDER Vs RATIO PUT WRITE - Risk & Reward
LONG CALL LADDER
RATIO PUT WRITE
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
Net Premium Received - Commissions Paid
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Price of Underlying - Sale Price of Underlying - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net Premium Received + Commissions Paid
Risk
Unlimited
Unlimited
Reward
Unlimited
Limited
LONG CALL LADDER Vs RATIO PUT WRITE - Strategy Pros & Cons
LONG CALL LADDER
RATIO PUT WRITE
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Short Strangle and Short Straddle
Disadvantage
• Unlimited risk. • Margin required.
• Potential loss is higher than gain. • Limited profit.
Advantages
• Reduces capital outlay of bull call spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.