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 exactly opposite to Covered Call Strategy. Here the investor is neutral or moderately bearish in nature and wants to take advantage of the price fall in the near future. The trader will short one lot of stock future. Now the trader will short ATM Put Option, the option strike price will be his exit price. If the prices rally above the strike price, the ..
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
Futures Price + Premium Received
LONG CALL LADDER Vs COVERED PUT - When & How to use ?
LONG CALL LADDER
COVERED PUT
Market View
Neutral
Bearish
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.
The Covered Put works well when the market is moderately Bearish.
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
Sell Underlying Sell OTM 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
Futures Price + Premium Received
LONG CALL LADDER Vs COVERED PUT - Risk & Reward
LONG CALL LADDER
COVERED PUT
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
The profit happens when the price of the underlying moves above strike price of Short Put.
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Price of Underlying - Sale Price of Underlying - Premium Received
Risk
Unlimited
Unlimited
Reward
Unlimited
Limited
LONG CALL LADDER Vs COVERED PUT - Strategy Pros & Cons
LONG CALL LADDER
COVERED PUT
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Bear Put Spread, Bear Call Spread
Disadvantage
• Unlimited risk. • Margin required.
• Limited profit, unlimited risk. • Trader should have enough experience before using this 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.
• Investors can book profit when underlying stock price drop, move sideways or rises by a small amount. • Able to generate monthly income. • Able to generate profit from fall in prices or mild increase in the prices.
