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Lecture No 23
Bull Call Ladder
Rohan Sharma (Coach)
Basics Concepts – Bull Call Ladder
Proficiency -
Advanced
Direction –
Neutral
Asset Leg –
Long Call+ Short
Call + Short Call
Max Risk -
Unlimited
Max Reward -
Limited
Income
Strategies
Description – Bull Call Ladder
 The Bull Call Ladder is an extension to the Bull Call Spread.
By shorting another call at a higher strike price, the position
assumes uncapped risk potential if the stock soars upwards.
The net effect of the higher short strike is to reduce the cost
and breakeven of the Bull Call Spread and adjust the
directional nature of the trade.
The higher call strike prices are further OTM and will
therefore have lower premiums than the lower strike bought
call.
Description – Bull Call Ladder
If the stock falls below the lower (buy) strike, you can make a loss;
if the stock rises to anywhere between the middle and upper (short) strikes,
you make your maximum profit;
if the stock rises above the highest strike, then you can make unlimited losses.
The extra leg also ensures that you may have two breakeven points.
Buy lower strike calls.
Sell the same number of middle strike calls with the same
expiration date.
Sell the same number of higher strike calls with same expiration
date.
Context - Bull Call Ladder
Outlook
A Bull Call Ladder is a Bull Call Spread financed by selling an additional call
further OTM.
Rationale
To execute a direction neutral/conservatively bullish trade for enhanced
income.
The lower strike sold calls will have the effect of capping your upside, and
the higher strike sold calls will reduce the cost basis and breakeven further,
but at the expense of an uncapped downside.
Net Position
 This can be a net debit or net credit trade because while your bought calls
will be more expensive than your sold calls, you’re selling more calls that
you’re buying.
Your maximum risk on the trade is uncapped because you are selling more
calls than you’re buying.
Context - Bull Call Ladder
Effect of Time Decay
 Time decay is harmful to the position around the lower strike price
and becomes more helpful around the highest strike price.
Time Period to Trade
It’s safest to choose a shorter term to expiration in order to reduce
the possibility of uncapped risk
Breakeven Down = [Lower strike + net debit]
Breakeven Up = [Higher strike + middle strike - lower strike] - net
debit
Steps to Trading a Bull Call Ladder
Steps In
Try to ensure that the trend is upward but identify a clear
area of support and resistance.
Steps Out
Manage your position according to the rules defined
in your Trading Plan.
If the stock falls below your stop loss, then sell the
long call, and if you’re not permitted to trade naked
calls, then unravel the entire position.
Exiting the Trade - Bull Call Ladder
Exiting the Position
 With this strategy, you can simply unravel the spread by
buying back the calls you sold and selling the calls you
bought in the first place.
 Advanced traders may leg up and down as the underlying
asset fluctuates up and down.
Mitigating a Loss
Unravel the trade as described previously.
Advanced traders may choose to only partially unravel the
spread leg-by-leg.
Advantages and Disadvantages
Advantages
Lower cost and breakeven than a Bull Call Spread.
Disadvantages
Confusing as to whether this is a bullish or bearish
strategy.
Uncapped downside if the stock rises.
Typically used as a repair to a Bull Call Spread;
therefore, this is only for more advanced traders.
Real Time
Example
Rohan Sharma (Coach)
Price Movement
Position on Charts
Rohan Sharma (Coach)
Lecture no 23  bull call ladder
Example – Bull Call Ladder
Market Behavior Nifty
Option /Future Buy ITM Call & Sell ATM & OTM Call
Action (Long/ Short) Both
Price Movement Expectation Upside / Side Ways
Spot Price 11700
Strike Price (LONG ITM CALL) 11600 Premium 140
Strike Price (SHORT ATM CALL) 11700 Premium 100
Strike Price (SHORT OTM CALL) 11800 Premium 50
Break Even (Up) (Higher + Middle - Lower Strike) + Net Credit (11700+11800 - 11600) +10
= 11910
Break Even (Down) Lower Strike + Net Credit = (11600 – 10 ) = 11590
Time to Expiry Mid/Last of the Month
Position of Price in Charts At Absolute Bottom / Higher Bottom in Upward Trend
Max Risk Un Limited
Max Reward Limited
Bull Call Ladder
LONG ITM CALL 11600 Premium 140 BEP 11740
SHORT ATM CALL 11700 Premium 100 BEP 11800
SHORT OTM CALL 11800 Premium 50 BEP 11850
Nifty at Expiry LONG ITM CALL
BEP – 11740
SHORT ATM CALL
BEP – 11800
SHORT OTM CALL
BEP - 11850
Total P&L
12200 460 -400 -350 -290
12100 360 -300 -250 -190
12000 260 -200 -150 -90
11900 160 -100 -50 10
11800 60 - 50 110
11700 -40 100 50 10
11600 -140 100 50 10
11500 -140 100 50 10
11400 -140 100 50 10

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Lecture no 23 bull call ladder

  • 1. Lecture No 23 Bull Call Ladder Rohan Sharma (Coach)
  • 2. Basics Concepts – Bull Call Ladder Proficiency - Advanced Direction – Neutral Asset Leg – Long Call+ Short Call + Short Call Max Risk - Unlimited Max Reward - Limited Income Strategies
  • 3. Description – Bull Call Ladder  The Bull Call Ladder is an extension to the Bull Call Spread. By shorting another call at a higher strike price, the position assumes uncapped risk potential if the stock soars upwards. The net effect of the higher short strike is to reduce the cost and breakeven of the Bull Call Spread and adjust the directional nature of the trade. The higher call strike prices are further OTM and will therefore have lower premiums than the lower strike bought call.
  • 4. Description – Bull Call Ladder If the stock falls below the lower (buy) strike, you can make a loss; if the stock rises to anywhere between the middle and upper (short) strikes, you make your maximum profit; if the stock rises above the highest strike, then you can make unlimited losses. The extra leg also ensures that you may have two breakeven points. Buy lower strike calls. Sell the same number of middle strike calls with the same expiration date. Sell the same number of higher strike calls with same expiration date.
  • 5. Context - Bull Call Ladder Outlook A Bull Call Ladder is a Bull Call Spread financed by selling an additional call further OTM. Rationale To execute a direction neutral/conservatively bullish trade for enhanced income. The lower strike sold calls will have the effect of capping your upside, and the higher strike sold calls will reduce the cost basis and breakeven further, but at the expense of an uncapped downside. Net Position  This can be a net debit or net credit trade because while your bought calls will be more expensive than your sold calls, you’re selling more calls that you’re buying. Your maximum risk on the trade is uncapped because you are selling more calls than you’re buying.
  • 6. Context - Bull Call Ladder Effect of Time Decay  Time decay is harmful to the position around the lower strike price and becomes more helpful around the highest strike price. Time Period to Trade It’s safest to choose a shorter term to expiration in order to reduce the possibility of uncapped risk Breakeven Down = [Lower strike + net debit] Breakeven Up = [Higher strike + middle strike - lower strike] - net debit
  • 7. Steps to Trading a Bull Call Ladder Steps In Try to ensure that the trend is upward but identify a clear area of support and resistance. Steps Out Manage your position according to the rules defined in your Trading Plan. If the stock falls below your stop loss, then sell the long call, and if you’re not permitted to trade naked calls, then unravel the entire position.
  • 8. Exiting the Trade - Bull Call Ladder Exiting the Position  With this strategy, you can simply unravel the spread by buying back the calls you sold and selling the calls you bought in the first place.  Advanced traders may leg up and down as the underlying asset fluctuates up and down. Mitigating a Loss Unravel the trade as described previously. Advanced traders may choose to only partially unravel the spread leg-by-leg.
  • 9. Advantages and Disadvantages Advantages Lower cost and breakeven than a Bull Call Spread. Disadvantages Confusing as to whether this is a bullish or bearish strategy. Uncapped downside if the stock rises. Typically used as a repair to a Bull Call Spread; therefore, this is only for more advanced traders.
  • 11. Price Movement Position on Charts Rohan Sharma (Coach)
  • 13. Example – Bull Call Ladder Market Behavior Nifty Option /Future Buy ITM Call & Sell ATM & OTM Call Action (Long/ Short) Both Price Movement Expectation Upside / Side Ways Spot Price 11700 Strike Price (LONG ITM CALL) 11600 Premium 140 Strike Price (SHORT ATM CALL) 11700 Premium 100 Strike Price (SHORT OTM CALL) 11800 Premium 50 Break Even (Up) (Higher + Middle - Lower Strike) + Net Credit (11700+11800 - 11600) +10 = 11910 Break Even (Down) Lower Strike + Net Credit = (11600 – 10 ) = 11590 Time to Expiry Mid/Last of the Month Position of Price in Charts At Absolute Bottom / Higher Bottom in Upward Trend Max Risk Un Limited Max Reward Limited
  • 14. Bull Call Ladder LONG ITM CALL 11600 Premium 140 BEP 11740 SHORT ATM CALL 11700 Premium 100 BEP 11800 SHORT OTM CALL 11800 Premium 50 BEP 11850 Nifty at Expiry LONG ITM CALL BEP – 11740 SHORT ATM CALL BEP – 11800 SHORT OTM CALL BEP - 11850 Total P&L 12200 460 -400 -350 -290 12100 360 -300 -250 -190 12000 260 -200 -150 -90 11900 160 -100 -50 10 11800 60 - 50 110 11700 -40 100 50 10 11600 -140 100 50 10 11500 -140 100 50 10 11400 -140 100 50 10