This strategy is implemented when a trader is slightly bearish on the market. A trader is required to be bullish over the volatility in the market. It involves sale of an ITM Put Option and buying of 1 ATM & 1 OTM Put Options. However, the risk associated with this strategy is limited.
This strategy is just the opposite of Long Straddle. A trader should adopt this strategy when he expects less volatility in the near future. Here, a trader will sell one Call Option & one Put Option of the same strike price, same expiry date and of the same underlying asset. If the stock/index hovers around the same levels then both the options will expire worthless an ..
Upper Breakeven Point = Strike Price of Short Put - Net Premium Received Lower Breakeven Point = Total Strike Prices of Long Puts - Strike Price of Short Put + Net Premium Received
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
SHORT PUT LADDER Vs SHORT STRADDLE - When & How to use ?
SHORT PUT LADDER
SHORT STRADDLE
Market View
Neutral
Neutral
When to use?
This strategy is implemented when a trader is slightly bearish on the market.
This strategy is work well when an investor expect a flat market in the coming days with very less movement in the prices of underlying asset.
Action
Sell ITM Put Option, Buying 1 ATM & 1 OTM Put Option.
Sell Call Option, Sell Put Option
Breakeven Point
Upper Breakeven Point = Strike Price of Short Put - Net Premium Received Lower Breakeven Point = Total Strike Prices of Long Puts - Strike Price of Short Put + Net Premium Received
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
SHORT PUT LADDER Vs SHORT STRADDLE - Risk & Reward
SHORT PUT LADDER
SHORT STRADDLE
Maximum Profit Scenario
When Price of Underlying < Total Strike Prices of Long Puts - Strike Price of Short Put + Net Premium Received
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Strike Price of Short Put - Strike Price of Higher Strike Long Put - Net Premium Received + Commissions Paid
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Unlimited
Reward
Unlimited
Limited
SHORT PUT LADDER Vs SHORT STRADDLE - Strategy Pros & Cons
SHORT PUT LADDER
SHORT STRADDLE
Similar Strategies
Strap, Strip
Short Strangle
Disadvantage
• Best to use when you are confident about movement of market. • Small margin required.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
Advantages
• When there is surge in implied volatility, this strategy can give more profit. • Unlimited downside profit. • Limited risk and unlimited reward strategy.
• A trader can earn profit even when there is no volatility in the market . • Allows you to benefit from double time decay. • Trader can collect premium from puts and calls option .