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Long Put Ladder
The long put ladder, or bear put ladder, is a limited profit, unlimited risk strategy in options trading that is employed when the options trader thinks that the underlying security will experience little volatility in the near term. To setup the long put ladder, the options trader purchases an inthemoney put, sells an atthemoney put and sells another lower strike outofthemoney put of the same underlying security and expiration date.
Long Put Ladder Construction 
Buy 1 ITM Put Sell 1 ATM Put Sell 1 OTM Put 
The long put ladder can also be seen as an extension of the bear put spread by selling another lower striking put. The purpose of shorting another put is to further finance the cost of establishing the spread position at the expense of being exposed to unlimited risk in the event that the underlying stock price crashes.
Limited Profit Potential
Maximum profit for the long put ladder strategy is limited and occurs when the underlying stock price on expiration date is trading between the strike prices of the put options sold. At this price, while both the long put and the higher strike short put expire in the money, the long put is worth more than the short put. The profit can be calculated using the formula below.
The formula for calculating maximum profit is given below:
 Max Profit = Strike Price of Long Put – Strike Price of Higher Strike Short Put – Net Premium Paid – Commissions Paid
 Max Profit Achieved When Price of Underlying is in between the Strike Prices of the 2 Short Puts
Limited Upside Risk, Unlimited Risk to the Downside
Losses is limited to the initial debit taken if the stock price rallies above the upper breakeven point but large unlimited losses can be suffered should the stock price makes a dramatic move to the downside below the lower breakeven point.
The formula for calculating loss is given below:
 Maximum Loss = Unlimited
 Loss Occurs When Price of Underlying
Breakeven Point(s)
There are 2 breakeven points for the long put ladder position. The breakeven points can be calculated using the following formulae.
 Upper Breakeven Point = Strike Price of Long Put – Net Premium Paid
 Lower Breakeven Point = Total Strike Prices of Short Puts – Strike Price of Long Put + Net Premium Paid
Example
Suppose XYZ stock is trading at $40 in June. An options trader executes a long put ladder strategy by buying a JUL 45 put for $600, selling a JUL 40 put for $200 and a JUL 35 put for $100. The net debit required for entering this trade is $300.
Let’s say XYZ stock remains at $40 on expiration date. At this price, only the long JUL 45 put will expire in the money with an intrinsic value of $500. Taking into account the initial debit of $300, selling this put to close the position will give the trader a $200 profit – which is also his maximum possible profit.
In the event that XYZ stock rallies and is trading at $45 on expiration in July, all the puts will expire worthless and the trader’s loss will be the initial $300 debit taken to enter the trade.

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However, if the stock price had dropped to $25 instead, all the put options will expire in the money. The short JUL 40 put will expire with $1500 in intrinsic value while the short JUL 35 put will expire with $1000 in intrinsic value. Selling the long JUL 45 put will only give the options trader $2000 so he still have to top up another $500 to close the position. Together with the initial debit of $300, his total loss comes to $800. This loss could have been worse if the stock had dived below $25.
Note: While we have covered the use of this strategy with reference to stock options, the long put ladder is equally applicable using ETF options, index options as well as options on futures.
Commissions
For ease of understanding, the calculations depicted in the above examples did not take into account commission charges as they are relatively small amounts (typically around $10 to $20) and varies across option brokerages.
However, for active traders, commissions can eat up a sizable portion of their profits in the long run. If you trade options actively, it is wise to look for a low commissions broker. Traders who trade large number of contracts in each trade should check out OptionsHouse.com as they offer a low fee of only $0.15 per contract (+$4.95 per trade).
Similar Strategies
The following strategies are similar to the long put ladder in that they are also low volatility strategies that have limited profit potential and unlimited risk.
Short Put Ladder
The short put ladder, or bull put ladder, is a unlimited profit, limited risk strategy in options trading that is employed when the options trader thinks that the underlying security will experience significant volatility in the near term.
Short Put Ladder Construction 
Sell 1 ITM Put Buy 1 ATM Put Buy 1 OTM Put 
To setup the short put ladder, the options trader sells an inthemoney put, buys an atthemoney put and buys another lower strike outofthemoney put of the same underlying security and expiration date.
Unlimited Downside, Limited Upside Profit Potential
Maximum gain is limited to the initial credit received if the stock price rallies above the upper breakeven point but large unlimited profit can be achieved should the stock price makes a dramatic move to the downside below the lower breakeven point.
The formula for calculating profit is given below:
 Maximum Profit = Unlimited
 Profit Achieved When Price of Underlying
Limited Risk
Maximum loss for the short put ladder strategy is limited and occurs when the underlying stock price on expiration date is trading between the strike prices of the put options bought. At this price, while both the short put and the higher strike long put expire in the money, the short put is worth more than the long put, resulting in a loss. The loss can be calculated using the formula below.
The formula for calculating maximum loss is given below:
 Max Loss = Strike Price of Short Put – Strike Price of Higher Strike Long Put – Net Premium Received + Commissions Paid
 Max Loss Occurs When Price of Underlying is in between the Strike Prices of the 2 Long Puts
Breakeven Point(s)
There are 2 breakeven points for the short put ladder position. The breakeven points can be calculated using the following formulae.
 Upper Breakeven Point = Strike Price of Short Put – Net Premium Received
 Lower Breakeven Point = Total Strike Prices of Long Puts – Strike Price of Short Put + Net Premium Received
Example
Suppose XYZ stock is trading at $40 in June. An options trader executes a short put ladder strategy by sellng a JUL 45 put for $600, buying a JUL 40 put for $200 and a JUL 35 put for $100. The net credit received for entering this trade is $300.
Let’s say XYZ stock remains at $40 on expiration date. At this price, only the short JUL 45 put will expire in the money with an intrinsic value of $500. Taking into account the initial credit of $300, buying back this put to close the position will leave the trader with a $200 loss – which is also his maximum possible loss.
In the event that XYZ stock rallies and is trading at $45 on expiration in July, all the puts will expire worthless and the trader’s profit will be the initial $300 credit received when entering the trade.
However, if the stock price had dropped to $25 instead, all the put options will expire in the money. The long JUL 40 put will expire with $1500 in intrinsic value while the long JUL 35 put will expire with $1000 in intrinsic value. Buying back the short JUL 45 put will only cost the options trader $2000 so he still have a gain of $500 when closing the position. Together with the initial credit of $300, his total profit comes to $800. This profit could have been greater if the stock had dived below $25.
Note: While we have covered the use of this strategy with reference to stock options, the short put ladder is equally applicable using ETF options, index options as well as options on futures.
Commissions
For ease of understanding, the calculations depicted in the above examples did not take into account commission charges as they are relatively small amounts (typically around $10 to $20) and varies across option brokerages.
However, for active traders, commissions can eat up a sizable portion of their profits in the long run. If you trade options actively, it is wise to look for a low commissions broker. Traders who trade large number of contracts in each trade should check out OptionsHouse.com as they offer a low fee of only $0.15 per contract (+$4.95 per trade).
Similar Strategies
The following strategies are similar to the short put ladder in that they are also high volatility strategies that have unlimited profit potential and limited risk.
Long Put Ladder Spread
Long Put Ladder Spread – Definition
An options strategy consisting of writing an additional lower strike price put option on a bear put spread in order to further reduce capital outlay.
Long Put Ladder Spread – Introduction
The Long Put Ladder Spread, also known as the Bear Put Ladder Spread, is an improvement made to the Bear Put Spread. It further eliminates capital outlay by writing an additional further out of the money put option of the same expiration month. Such an improvement not only reduces capital outlay but sometimes eliminates capital outlay altogether, transforming the Bear Put Spread into a credit spread. The drawback of such an improvement is that the Long Put Ladder Spread is exposed to unlimited upside loss if the underlying stock moves downwards explosively. Yes, there are always pros and cons to every options trading strategy.
This tutorial shall explain what the Long Put Ladder Spread is, its calculations, pros and cons as well as how to profit from it.
Long Put Ladder Spread – Classification
Type of Strategy : Bearish  Type of Spread : Vertical Spread  Debit or Credit : Debit
The Long Put Ladder Spread is part of the “Ladder Spreads” family. Ladder Spreads add an additional further out of the money option on top of two legged spreads, stepping the position down by another strike price. The use of progressively higher or lower strike prices in a single spread gave “Ladder Spreads” its name.
Distinction Between Long Put Ladder Spread and Bear Ratio Spread
The Long Put Ladder Spread is extremely similiar to the Bear Ratio Spread as both the Bear Ratio Spread and Long Put Ladder Spread aim to reduce or eliminate upfront capital outlay for a Bear Put Spread position. In doing so, both the Bear Ratio Spread and Long Put Ladder Spread require margin for the uncovered options. However, the Bear Ratio Spread does so by writing more out of the money put options at the same strike price while the Long Put Ladder Spread does so by writing put options at a lower strike price than the existing short put leg. The result of this difference is that the Long Put Ladder Spread require a lower margin than the Bear Ratio Spread due to the lower strike price of the additional short put options, while the Bear Ratio Spread would have a higher maximum profit, closer breakeven point and a lower capital outlay due to the higher extrinsic value offered by the higher strike price of the additional short put options.
When To Use Long Put Ladder Spread?
The Long Put Ladder Spread should be used as an improvement to a Bear Put Spread position when it is clear that the price of the underlying stock would not move explosively.
How To Use Long Put Ladder Spread?
Long Put Ladder is made up of buying an At The Money (or slightly ITM or OTM) Put Option, writing an equivalent amount of a lower strike price Out Of The Money put Option and then writing yet another equivalent amount of an even lower strike price out of the money put option.
Buy ATM Put + Sell OTM Put + Sell Lower Strike OTM Put
Long Put Ladder Spread Example
Assuming QQQ trading at $44. Buy To Open 1 contract of QQQ Jan44Put, Sell To Open 1 contract of QQQ Jan42Put and Sell To Open 1 contract of QQQ Jan41Put. 
Choosing Strike Prices For Long Put Ladder Spread
The consideration behind the middle strike price for Long Put Ladder spreads is the same as the Bear Put Spread. You write the middle strike price put options at the price you expect the underlying stock to move down to but not exceed by expiration. In our example above, we expect QQQ to move down to but not exceed $42. If we expect QQQ to move down to $41 by expiration, we will write the middle strike price at $41 and then move the further OTM strike price lower as well.
The lower strike price OTM put is usually written one strike price lower than the middle strike price. In our example, since we wrote the middle strike price at $42, we have chosen to write the lower strike price OTM put one strike lower at $41. However, the lower the strike price of this lowest strike price leg, the lower the margin requirement. As such, one could also choose to write this lowest strike price leg at as low a strike price as it takes to reduce the capital outlay of the position to a level of one’s satisfaction.
Trading Level Required For Long Put Ladder Spread
A Level 5 options trading account that allows naked write is needed for the Long Put Ladder Spread due to the uncovered lowest strike price leg. Read more about Options Account Trading Levels.
Profit Potential of Long Put Ladder Spread
Profit Calculation of Long Put Ladder Spread
Maximum Profit = Strike Price of Long Put – Middle Strike Price – Net Debit Paid
Maximum Loss if Stock Rises = Net Debit
Maximum Loss if Stock Drops Beyond Lowest Strike Price = Unlimited
Long Put Ladder Spread Calculations
Following up on the above example, assuming QQQQ at $46.50 at expiration. Bought the JAN 44 Put for $1.50 Net Debit = $1.50 – $0.50 – $0.15 = $0.85 Maximum Profit = 44 – 42 – 0.85 = $1.15 Max. Upside Risk = $0.85 Max. Downside Risk = Unlimited Upper Break Even = $44 – $0.85 = $43.15 Lower Break Even = $41 – $1.15 = $39.85 
Risk / Reward of Long Put Ladder Spread
Maximum Profit: Limited
Maximum Upside Loss: Limited to net debit paid
Maximum Downside Loss: Unlimited beyond lowest strike price
Break Even Point of Long Put Ladder Spread
There are 2 break even points to a Long Put Ladder Spread. One breakeven point if the underlying asset goes up (Upper Breakeven) beyond which the position goes into an unlimited loss, and one breakeven point if the underlying asset goes down (Lower Breakeven).
Upper BEP: Long Put Strike – Net Debit
Lower BEP: Lowest Strike – Max. Profit
Long Put Ladder Spread Greeks
Delta : Negative
Delta of Long Put Ladder Spread is negative at the start. As such, its value will increase as the price of the underlying stock decreases.
Gamma : Negative
Gamma of Long Put Ladder Spread is negative and will increase delta as the price of the underlying stock decreases. It will then come to a point where the delta will become positive and the position will start to decline in value as the price of the underlying stock continues to decrease.
Theta : Positive
Theta of Long Put Ladder Spread is positive and will therefore gain value over time due to time decay in the short term prior to expiration as the short out of the money put options lose value faster than the Long Put options.
Vega : Negative
Vega of Long Put Ladder Spread is negative and will therefore lose value as implied volatility rises and gains value as implied volatility drops. As such, it is highly disadvantageous to use a Long Put Ladder Spread in periods of rising implied volatility prior to expiration.
Advantages Of Long Put Ladder Spread
:: Further reduces capital outlay of a Bear Put Spread
:: Wider maximum profit zone than a Bear Ratio Spread
:: Lowers breakeven point of a Bear Put Spread
Disadvantages Of Long Put Ladder Spread
:: Margin required due to uncovered OTM leg
Adjustments for Long Put Ladder Spread Before Expiration
1. If the underlying asset has declined beyond its breakeven point and is expected to continue to move strongly in the same direction, one could Buy To Close the short put options and hold the Long Put options for unlimited downside profit.

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