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.
Straddle is neither bullish nor bearish strategy; it is a market neutral strategy. Here a trader wishes to take advantage of the volatility in the market. This strategy involves buying of one Call option and one Put option of the same strike price, same expiry date and of the same underlying asset. Now a trader is bound to make profits once stock moves in either direc ..
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
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
LONG CALL LADDER Vs LONG STRADDLE - When & How to use ?
LONG CALL LADDER
LONG STRADDLE
Market View
Neutral
Neutral
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 options strategy is work well when and investor market view is bearish. The strategy minimizes your risk in the event of prime movements going against your expectations.
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
Buy Call Option, Buy 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
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
LONG CALL LADDER Vs LONG STRADDLE - Risk & Reward
LONG CALL LADDER
LONG STRADDLE
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
Max profit is achieved when at one option is exercised.
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Maximum Loss = Net Premium Paid
Risk
Unlimited
Limited
Reward
Unlimited
Unlimited
LONG CALL LADDER Vs LONG STRADDLE - Strategy Pros & Cons
LONG CALL LADDER
LONG STRADDLE
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Bear Put Spread
Disadvantage
• Unlimited risk. • Margin required.
• There should be continuous movement of the stock and options price for this strategy to be profitable. • Time decay hurts long option if the strike price, expiration date or underlying stock are badly chosen.
Advantages
• Reduces capital outlay of bull call spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.
• Unlimited potential beyond the breakeven point in either direction . • Book your profit from highly volatile stocks without determining the direction. • Limited risk, more profit.