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Bull Call Ladder Option Strategy

Bull Call Ladder Option Strategy

What is Bull Call Ladder Option Strategy?

  • Bull Call Ladder Option Strategy is neutral to Bullish Strategy that offers good return but with higher risk, market expectation would be slightly bullish and subdued volatility. Bull Call Ladder entails buying 1 ATM or 1 ITM and selling two higher strike OTM calls at different strikes. It could just be an extension or modification over Bull Call Spread and Ratio Spread.

When to Execute?

  • Bull Call Ladder strategy to be executed when we are moderately bullish market and expecting market to be less volatile. Market should remain between the strike price to benefit from the strategy.

What is the Trade?

  • Under the Bull Call Ladder we buy one strike price At-the-Money (ATM) or In-the-Money (ITM) while selling two OTM CE.

What will be maximum profit?

  • Bull Call Ladder is a Net debit strategy where we will have limited profit; Maximum profit will be if market stays in between higher and middle strike price i.e., difference between Middle strike and lower Strike Call less net initial outflow.

What will be maximum loss?

  • Maximum Loss is unlimited if the stock moves above breakeven point.

What are the advantages?

  • Bull Call Ladder is best executed in a shorter term period to reduce the possibility of uncapped risk if the underlying asset rises too much.

What are the disadvantages?

  • Time decay is harmful to the position around the buy strike price and becomes advantageous around the highest strike price.

Example for Bull call Ladder:

  • Nifty future price is 15600. A Bull Call Ladder can be devised by selling one lot of 15400 Call In-the-Money (ITM) @250 and selling one lot of 15600 CE (ATM) @ 100 and Selling one more lot of 15800 CE (OTM). Net Premium Paid or Received = Rs. (-125). Undefined above 15875. Loss is defined below 15525. Maximum profit is between 15600-15800.