Long Put Ladder can be implemented when a trader is slightly bearish on the market and volatility. It involves buying of an ITM Put Option and sale of 1 ATM & 1 OTM Put Options. However, the risk associated with this strategy is unlimited and reward is limited.
A Strangle is similar to Straddle. In Strangle, a trader will purchase one OTM Call Option and one OTM Put Option, of the same expiry date and the same underlying asset. This strategy will reduce the entry cost for trader and it is also cheaper than straddle. A trader will make profits, if the market moves sharply in either direction and gives extra-ordinary returns in the ..
Upper Breakeven Point = Strike Price of Long Put - Net Premium Paid, Lower Breakeven Point = Total Strike Prices of Short Puts - Strike Price of Long Put + Net Premium Paid
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
LONG PUT LADDER Vs LONG STRANGLE - When & How to use ?
LONG PUT LADDER
LONG STRANGLE
Market View
Neutral
Neutral
When to use?
This Strategy can be implemented when a trader is slightly bearish on the market and volatility.
This strategy is used in special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Action
Buy 1 ITM Put, Sell 1 ATM Put, Sell 1 OTM Put
Buy OTM Call Option, Buy OTM Put Option
Breakeven Point
Upper Breakeven Point = Strike Price of Long Put - Net Premium Paid, Lower Breakeven Point = Total Strike Prices of Short Puts - Strike Price of Long Put + Net Premium Paid
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
LONG PUT LADDER Vs LONG STRANGLE - Risk & Reward
LONG PUT LADDER
LONG STRANGLE
Maximum Profit Scenario
Strike Price of Long Put - Strike Price of Higher Strike Short Put - Net Premium Paid - Commissions Paid
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid
Maximum Loss Scenario
When Price of Underlying < Total Strike Prices of Short Puts - Strike Price of Long Put + Net Premium Paid
Max Loss = Net Premium Paid
Risk
Unlimited
Limited
Reward
Limited
Unlimited
LONG PUT LADDER Vs LONG STRANGLE - Strategy Pros & Cons
LONG PUT LADDER
LONG STRANGLE
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Long Straddle, Short Strangle
Disadvantage
• Unlimited risk. • Margin required.
• Require significant price movement to book profit. • Traders can lose more money if the underlying asset stayed stagnant.
Advantages
• Reduces capital outlay of bear put spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.
• Able to book profit, no matter if the underlying asset goes in either direction. • Limited loss to the debit paid. • If the underlying asset continues to move in one direction then you can book Unlimited profit .
