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 applied when trader goes long on the underlying asset i.e. he buys the stock in cash market. He has a bullish view and expects the market to rise in the near future, but simultaneously has the fear of downward movement of the markets. In order to cover his position from vulnerabilities he buys one ATM Put Option of the same underlying asset. Here, a trader wi ..
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 Paid
LONG CALL LADDER Vs MARRIED PUT - When & How to use ?
LONG CALL LADDER
MARRIED PUT
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.
This Strategy work when the investor goes long in any stock. He expects the rise in market in future.
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
Buy 250 XYZ Shares, 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
Purchase Price of Underlying + Premium Paid
LONG CALL LADDER Vs MARRIED PUT - Risk & Reward
LONG CALL LADDER
MARRIED PUT
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Max Loss = Premium Paid + Commissions Paid
Risk
Unlimited
Limited
Reward
Unlimited
Unlimited
LONG CALL LADDER Vs MARRIED PUT - Strategy Pros & Cons
LONG CALL LADDER
MARRIED PUT
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Long Call
Disadvantage
• Unlimited risk. • Margin required.
Cost of the put options eats into profit margin.
Advantages
• Reduces capital outlay of bull call spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.
