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 just the opposite of Long Straddle. A trader should adopt this strategy when he expects less volatility in the near future. Here, a trader will sell one Call Option & one Put Option of the same strike price, same expiry date and of the same underlying asset. If the stock/index hovers around the same levels then both the options will expire worthless an ..
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 SHORT STRADDLE - When & How to use ?
LONG CALL LADDER
SHORT 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 strategy is work well when an investor expect a flat market in the coming days with very less movement in the prices of underlying asset.
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
Sell Call Option, Sell 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 SHORT STRADDLE - Risk & Reward
LONG CALL LADDER
SHORT STRADDLE
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Unlimited
Unlimited
Reward
Unlimited
Limited
LONG CALL LADDER Vs SHORT STRADDLE - Strategy Pros & Cons
LONG CALL LADDER
SHORT STRADDLE
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
Short Strangle
Disadvantage
• Unlimited risk. • Margin required.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
Advantages
• Reduces capital outlay of bull call spread. • Wider maximum profit zone. • When there is decrease in implied volatility, this strategy can give profit.
• A trader can earn profit even when there is no volatility in the market . • Allows you to benefit from double time decay. • Trader can collect premium from puts and calls option .