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Bear Call Ladder Option Strategy

Bear Call Ladder Option Strategy

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 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?

  • Bull Call Ladder is a Net debit strategy where we will have limited profit; Maximum profit will be undefined above higher call.

What will be maximum loss?

  • Maximum Loss is defined as 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.

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 future price is 15800. A Bear Call Ladder can be devised by selling one lot of 15400 Call In-the-Money (ITM) @538.45 and buying one lot of 15800 CE (ATM) @ 267 and buying one more lot of 16000 CE @ 178 (OTM). Net Premium Paid or Received = Rs. (93.50). Undefined Profit above 16316. Loss is defined between 15484.00—16316.00