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.
Mr. X owns Reliance Shares and expects the price to rise in the near future. Mr. X is entitled to receive dividends for the shares he hold in cash market. Covered Call Strategy involves selling of OTM Call Option of the same underlying asset. The OTM Call Option Strike Price will generally be the price, where Mr. X will look to get out o ..
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
Purchase Price of Underlying- Premium Received
LONG CALL LADDER Vs COVERED CALL - When & How to use ?
LONG CALL LADDER
COVERED CALL
Market View
Neutral
Bullish
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.
An investor has a short term neutral view on the asset and for this reason holds the asset long and has a short position to generate income.
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
(Buy Underlying) (Sell OTM Call 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
Purchase Price of Underlying- Premium Received
LONG CALL LADDER Vs COVERED CALL - Risk & Reward
LONG CALL LADDER
COVERED CALL
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
[Call Strike Price - Stock Price Paid] + Premium Received
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Purchase Price of Underlying - Price of Underlying) + Premium Received
Risk
Unlimited
Unlimited
Reward
Unlimited
Limited
LONG CALL LADDER Vs COVERED CALL - Strategy Pros & Cons
LONG CALL LADDER
COVERED CALL
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Bull Call Spread
Disadvantage
• Unlimited risk. • Margin required.
• Unlimited risk, limited reward. • Inability to earn interest on the proceed used to buy the underlying stock.
Advantages
• Reduces capital outlay of bull call spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.
• Profit from option premium, rise in the underlying stock and dividends on the stock. • Allows you to generate income from your holding. • Profit when underlying stock price rise, move sideways or marginal fall.
