A Long Call Ladder Strategy is an extension to the Bear Put Spread by writing/selling an additional put option of a lower strike price.
This strategy is also known as Bear Put Ladder.
When to use this strategy?
This strategy is used by an investor when he/she is neutral or slightly bearish 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 ITM Put
Leg 2 – Sell 1 ATM Put
Leg 3 – Sell 1 OTM Put
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 price of the undelrying security at expiry is 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 face large losses if the price of the underlying security falls drastically.