What is Bear Call Ladder Option Strategy?

• Bear Call Ladder is a Bullish Strategy that offers uncapped return if stock rises and defined return if stock falls with limited risk, market expectation would be extremely bullish and high volatility. Bear Call Ladder is also known as Short Call Ladder. Although it is not a bearish Strategy but created as a net credit strategy. Its 3-leg strategy all belongs to the same expiry.

When to Execute Bear Call Ladder Option Strategy?

• Bear Call Ladder is a Bear Call Spread with an additional buy OTM Call. Outlook is to make capital gain while reducing maximum risk. The Bear Call Ladder or Short Call Ladder is better to implement when you are certain that an underlying would be moving significantly. It is a limited risk and an unlimited reward strategy if the movement comes on the higher side.

What is the Trade?

• Under Bear Call Ladder we are Selling one ITM Call, Buy One ATM Call, Buying one OTM Call.

What will be maximum profit?

• Bear Call Ladder is a Net debit or credit strategy depending on the strike selection; Maximum profit will be undefined above higher call strike price, after the breakeven point, on expiry.

What will be maximum loss?

• Maximum Loss is limited and it occurs when underlying is staying in between middle and the higher strike.

What are the advantages?

• One can use Bear Call Ladder to repair their loss-making Bear Call Spread. You can participate in upside movement of stock while still limiting down side. The Bear Call Ladder or Short Call Ladder is best use when one is expecting the underlying would be moving significantly. It is a limited risk and an unlimited reward option trading strategy if the movement comes on the higher side.

What are the disadvantages?

• Time decay is generally harmful when stock is between lower and middle strike and helpful when stock is surging higher. Clear understanding of the direction of the trend and identification of a clear area of both support and resistance could add value to the payoff.

Example for Bear Call ladder:

• Nifty fair future price is 17722.
  Expiry: 2 Feb 2023.
  A Bear Call Ladder can be devised by
  
  selling one lot of 17400 Call In-the-Money (ITM) at 390
  and
  buying one lot of 17700 CE (ATM) at 189.25
  and
  buying one more lot of 17800 CE at 103.30 (OTM).
  Net Premium Paid or Received = 97.45; Effectively: 97.45*50(lot size) = 4873 received.
  Undefined Profit above about 18103, expiry break even.
  Loss is defined between 17700 - 17900
  As per the Greeks, it is a positive vega options strategy, when the underlying is in the middle of the strategy. So rising volatility should benefit the options strategy.