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 protects an investor from unfavourable price movements in the position but limits the profits can be made on that position. A risk reversal is a hedging strategy that protects a long or short position by using put and call options. In this one option is buying and other is written. In this strategy the trader has to pay a premium, while the written option prod ..
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
Premium received - Put Strike Price
LONG CALL LADDER Vs RISK REVERSAL - When & How to use ?
LONG CALL LADDER
RISK REVERSAL
Market View
Neutral
Bullish
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 can be used for hedging. When an investor want to protect long or short position by using a call and put option.
Action
Buy 1 ITM Call, Sell 1 ATM Call, Sell 1 OTM Call
This strategy work when an investor want to hedge their position by buying a put option and selling a call 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
Premium received - Put Strike Price
LONG CALL LADDER Vs RISK REVERSAL - Risk & Reward
LONG CALL LADDER
RISK REVERSAL
Maximum Profit Scenario
Strike Price of Lower Strike Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
You have unlimited profit potential to the upside.
Maximum Loss Scenario
Price of Underlying - Upper Breakeven Price + Commissions Paid
You have nearly unlimited downside risk as well because you are short the put
Risk
Unlimited
Unlimited
Reward
Unlimited
Unlimited
LONG CALL LADDER Vs RISK REVERSAL - Strategy Pros & Cons
LONG CALL LADDER
RISK REVERSAL
Similar Strategies
Short Strangle (Sell Strangle), Short Straddle (Sell Straddle)
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Disadvantage
• Unlimited risk. • Margin required.
Unlimited 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.
