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.
When a trader is moderately bearish on the market he can implement this strategy. Bear-Put-Spread involves buying of ITM Put Option and selling of an OTM Put Option. If prices fall, the ITM Put option starts making profits and the OTM Put option also adds to profit at a certain extent if the expiry price stays above the OTM strike. However, if it falls below the OTM ..
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
Strike Price of Long Put - Net Premium
LONG CALL LADDER Vs BEAR PUT SPREAD - When & How to use ?
LONG CALL LADDER
BEAR PUT SPREAD
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.
The bear call spread options strategy is used when you are bearish in market view. 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 ITM Put Option, Sell OTM 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
Strike Price of Long Put - Net Premium
LONG CALL LADDER Vs BEAR PUT SPREAD - Risk & Reward
LONG CALL LADDER
BEAR PUT SPREAD
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Max Loss = Net Premium Paid.
Risk
Unlimited
Limited
Reward
Unlimited
Limited
LONG CALL LADDER Vs BEAR PUT SPREAD - Strategy Pros & Cons
LONG CALL LADDER
BEAR PUT SPREAD
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Bear Call Spread, Bull Call Spread
Disadvantage
• Unlimited risk. • Margin required.
• Limited profit. • Early assignment risk.
Advantages
• Reduces capital outlay of bull call spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.
• If the strike price, expiration date or underlying stocks are rightly chosen then risk of losses would be limited to the net premium paid. • This strategy works well in declining markets. • Limited risk.
