Bull Put Ladder

Bull Put Ladder

Post By - Manav Saini
Review By : Rohan Sharma
Updated on : October 26, 2021

Basics Concepts – Bull Put Ladder

Description - Bull Put Ladder

The Bull Put Ladder is an extension to the Bull Put Spread.
By buying another put at a lower strike, the position assumes uncapped reward potential if the stock plummets.
In Summary if the stock falls below the lower (buy) strike, we make potentially uncapped profit until the stock reaches zero;
if the stock rises to anywhere between the middle and upper (short) strikes, we make our maximum loss.
The extra leg also ensures that we may have two breakeven points.
This can be a net debit or net credit transaction because while your sold puts will be more valuable than your bought puts, you’re buying more puts that you’re selling.
Your maximum reward on the trade is uncapped because you are buying more puts than you’re selling.
Your total risk on the trade is limited to the difference between the lower and middle strike prices less your interim risk.
Buy lower strike puts.
Buy the same number of middle strike puts with the same expiration date.
Sell the same number of higher strike puts with same expiration date.

Introduction to Bull Put Ladder

Outlook

A Bull Put Ladder is a Bull Put Spread with an additional lower bought put further OTM.
This strategy has an uncapped reward as the underlying asset declines significantly, with Bull Put Ladders, your outlook is dependent on the relationship between the stock price and the higher strike price.
A Bull Put Ladder arises when a Bull Put Spread has gone wrong and the trader adjusts the position to become bearish.

Rationale

To execute a bearish trade for a capital gain. The lower strike bought puts will have the effect of uncapping your profit potential; the higher strike sold puts will reduce the cost basis.

Effect of Time Decay

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

Time Period to Trade

Depending on the reasons for the trade, you will be safest to choose a medium to long term to expiration, enough time to allow the underlying asset to move and make the position profitable without time decay destroying the long options.

Breakeven Down = [Lower strike – Maximum risk]

Breakeven Up = [Higher strike + net debit] (or – net credit)

Steps to Trading a Bull Put Ladder

Steps In

Try to ensure you understand the direction of the trend and identify a clear area of both support and resistance.

Steps Out

Manage your position according to the rules defined in your Trading Plan.
In any event, look to unravel the position at least one month before expiration, either to capture your profit or to contain your losses.

Exiting the trade - Bull Put Ladder

Exiting the Position

With this strategy, you can simply unravel the spread by buying back the puts you sold and selling the puts 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

Uncapped profit potential.
Capped risk.

Disadvantages

Confusing as to whether this is a bullish or bearish strategy.
The trade may be a net debit, whereas the standard Bull Put Spread is a net credit.
TypiPuty used as a repair to a Bull Put Spread; therefore, this is only for more advanced traders.

Share this Content

Derivatives Analysis

Advanced Option Strategy