A Long Call Ladder Strategy is an extension to the Bull Call Spread by writing/selling an additional call option of a higher strike price.
This strategy is also known as a Bull Call Ladder.
When to use this strategy?
This strategy is used by an investor when he/she is neutral or slightly bullish and is expecting limited volatility in the underlying security in the short term.
How to build this strategy?
This strategy has three legs:
Leg 1 – Buy 1 Call
Leg 2 – Sell 1 Call of Higher Strike Price
Leg 3 – Sell 1 Call of Even Higher Strike Price
Credit Spread/Debit Spread
This is a Debit Spread strategy.
This strategy has limited profit potential.
When is this strategy profitable?
The investor earns maximum profit when the undelrying security price is trading between the strike prices of the call options sold.
The investor faces unlimited risk in this strategy.
When is this strategy unprofitable?
The investor will have to bear large losses if the security price rises sharply.