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Bull Put Ladder Option Strategy

Bull Put Ladder Option Strategy

What is Bull Put Ladder Option Strategy?

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

When to Execute?

  • Bull Put Ladder is a Bear Put Spread with an additional buy OTM put. Outlook is to make capital gain while reducing maximum risk. The Bull Put Ladder or Short Put 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 lower side.

What is the Trade?

  • Under Bull Put Ladder we are Selling one ITM Put, Buy One ATM Put, buying one OTM Put.

What will be maximum profit?

  • It is a Net debit strategy. Maximum Profit is unlimited beyond lowest put strike. Your maximum reward on the trade is uncapped because you are buying more puts than you are selling.

What will be maximum loss?

  • Maximum Loss is defined as staying in between middle and the lower strike.

What are the advantages?

  • Bull Put Ladder will be safest to choose as a medium to long term to expiration to allow the underlying asset to move and make the position profitable without time decay destroying the long options. . Typically, a Bull Put Ladder arises when a Bull Put Spread has gone wrong and the trader adjusts the position to become bearish.

What are the disadvantages?

  • Time decay is generally harmful when the position is losing money, particularly around the middle strike.

Example for Bull Put ladder:

  • Nifty future price is 15700. A Bull Put Ladder can be devised by selling one lot of 1600 Put In-the-Money (ITM) @369.75 and buying one lot of 15700 PE (ATM) @ 227.90 and buying one more lot of 16000 CE @ 135.75 (OTM). Net Premium Paid or Received = Rs. (6.10) Undefined Profit below 15107. Loss is defined between 15107.00—15993.00