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 simply the reversal of the Synthetic Call Strategy. This strategy is implemented when a trader is bearish on the market and expects to go down. Trader will short underlying stock in the cash market and buy either an ATM Call Option or OTM Call Option. The Call Option is bought to protect / hedge the upside risk on the short position. 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
Sale Price of Underlying + Premium Paid
LONG CALL LADDER Vs PROTECTIVE CALL - When & How to use ?
LONG CALL LADDER
PROTECTIVE CALL
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.
This strategy is implemented when a trader is bearish on the market and expects to go down.
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
Buy 1 ATM Call
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
Sale Price of Underlying + Premium Paid
LONG CALL LADDER Vs PROTECTIVE CALL - Risk & Reward
LONG CALL LADDER
PROTECTIVE CALL
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
Sale Price of Underlying - Price of Underlying - Premium Paid
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Premium Paid + Call Strike Price - Sale Price of Underlying + Commissions Paid
Risk
Unlimited
Limited
Reward
Unlimited
Unlimited
LONG CALL LADDER Vs PROTECTIVE CALL - Strategy Pros & Cons
LONG CALL LADDER
PROTECTIVE CALL
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Put Backspread, Long Put
Disadvantage
• Unlimited risk. • Margin required.
• Profitable when market moves as expected. • Not good for beginners.
Advantages
• Reduces capital outlay of bull call spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.
• Limited risk if the market moves in opposite direction as expected. • Allows you to keep open a profitable position to make further profits. • Unlimited profit potential.
