Options Trading Strategies: Long Put Ladder
The long put ladder (otherwise called a bear put ladder) is a three legged strategy, created by selling one Out of The Money put, selling one At The Money put, and buying one In The Money put, all with a same expiration date.
When to use this strategy?
You are neutral to direction, and expect minimal underlying price movement. Also, a long call ladder can be used to extend the bear put spread (OTM short put + ITM long put) strategy where, by selling one more ATM put, you achieve the additional break even point and reduce the expense for establishing the spread, and increasing the profit probability.
Below is a Profit and Loss chart example of the long put ladder options strategy:
![](https://blog.btcoptions.io/wp-content/uploads/2022/03/long_put_ladder.png)
Pros:
Lower cost than bear put spread, and a better chances for profit.
Cons:
Uncapped maximum loss if the underlying price drop dramatically. Maximum profit is capped.
Example:
In this example, BTC is trading at 37,063.11 USD. You have sold an OTM put with a strike price of 35,000.00USD, sold an ATM put with a strike price of 37,000.00 USD, and bought an ITM put 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 566.70 USD.
The Profit and Loss chart is given below:
![](https://blog.btcoptions.io/wp-content/uploads/2022/03/LongPutLadderExp-1024x410.png)
Upon expiration:
If the BTC price is below the OTM short put strike all the put options will be assigned and you are exposed to a potential unlimited loss. You are in the profit as long as the bitcoin price is above the first break even price.
If the BTC price is between the strike prices of the OTM and ATM puts, the ITM long put and the ATM short put are assigned, and you are at your maximum profit which is equal to difference between strikes (ITM and ATM puts) minus the net premium.
If the BTC price is at or above the ITM long put strike price, all the puts expire worthless and your loss is equal to the net premium paid.
BTC at Expiry (USD) | Payoff (USD) |
---|---|
32,025.00 | -1,541.70 |
32,857.00 | -709.70 |
33,566.70 (break even 1) | 0 |
34,269.00 | +702.30 |
35,000.00 & 37,000.00 (SP OTM x SP ATM) | +1,433.30 (max profit is between strikes) |
37,705.00 | +728.30 |
38,433.80 (break even 2) | 0 |
38,708.00 | -274.70 |
39,000.00 (LP ITM) | -566.70 |