Bull Put Ladder
Description
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.
The problem is that now its not totally clear if we have a bullish or bearish strat-
egy, but because we are net long puts and we have uncapped profit potential if the
stock falls, do we have to call this a bearish strategy? The answer lies in the reason
for the trade and the position of the stock relative to the strikes.
Because we are net long options (and particularly OTM options), we are better off
trading this as a longer-term strategy in order to counter the effects of time decay.
So, in summary, if the stock falls below the lower (buy) strike, we make poten-
tially 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.
P/L Profile
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