Options Trading Strategies: Long Call Ladder
The long call ladder (otherwise called a bull call ladder) is a three-legged strategy, created by buying one In The Money call, selling one At The Money call, and selling one more Out of The Money call, all with the same expiration date.
The long call ladder is an extension to the bull call spread.
When to use this strategy?
You are looking for a neutral trade for a bigger income.
Below is a Profit and Loss chart example of a long call ladder options strategy:
Pros:
Cheaper than a bull call spread. Can be played as a net credit spread.
Cons:
Uncapped maximum loss if the underlying price rises. Maximum profit is capped.
Example:
In this example, BTC is trading at 37,063.82 USD. You have bought an ITM call with a strike price of 35,000.00USD, sold an ATM call with a strike price of 37,000.00 USD, and sold an OTM call with a strike price of 39,000.00 USD, all with an expiration date of February 11th 2022. As this is a net debit trade you have paid a net premium of 741.25 USD.
The Profit and Loss chart is given below:
Upon expiration:
If the BTC price is below the long call strike price, all calls will expire worthless and your loss will be equal to the net premium.
If the BTC price is above the long call strike and below the ATM short call, you are in profit as long as the bitcoin price is above the first break-even price.
If the BTC price is between the ATM short call and the OTM short call strike price, you are at your maximum profit which is equal to the difference between strikes minus the net premium.
If the BTC price is above the OTM short call strike price, you are in profit as long as the bitcoin price is below the second break-even price. However, your loss is potentially unlimited if the BTC price continues to rise.
| BTC at Expiry (USD) | Payoff (USD) |
|---|---|
| 35,000.00 (LP ITM) | -741.25 |
| 35,370.00 | -371.25 |
| 35,741.25 (break even 1) | 0 |
| 36,339.00 | +597.75 |
| 37,000.00 & 39,000.00 (SP ATM x SP OTM) | +1,258.75 (max profit is between strikes) |
| 39,579.00 | +679.75 |
| 40,258.75 (break even 2) | 0 |
| 40,346.00 | -87.25 |
| 40,499.00 | -240.25 |