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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.

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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
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.
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 Spread
Short Put Ladder Spread – Definition
An options strategy consisting of buying an additional lower strike price put option on a bull put spread in order to transform the position from a bullish strategy to a volatile strategy.
Short Put Ladder Spread – Introduction
The Short Put Ladder Spread, also known as the Bull Put Ladder Spread, is an improvement to the Bull Put Spread, transforming it from an options strategy that profits only when the underlying stock goes upwards into a volatile strategy that profits when the underlying stock goes upwards or downwards with unlimited profit potential to downside.
This tutorial shall explain what the Short Put Ladder Spread is, its calculations, pros and cons as well as how to profit from it.
Short Put Ladder Spread – Classification
Type of Strategy : Volatile  Type of Spread : Vertical Spread  Debit or Credit : Credit
The Short 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 up by another strike price. The use of progressively higher or lower strike prices in a single spread gave “Ladder Spreads” its name.
When To Use Short Put Ladder Spread?
The Short Put Ladder Spread could be used when the underlying stock is expected to remain stagnant, rise moderately or drop significantly.
How To Use Short Put Ladder Spread?
Short Put Ladder is made up of writing an At The Money (or slightly ITM or OTM) Put Option, buying an equivalent amount of a lower strike price Out Of The Money Put Option and then buying yet another equivalent amount of an even lower strike price out of the money put option.
Sell ATM Put + Buy OTM Put + Buy Lower Strike OTM Put
Short Put Ladder Spread Example
Assuming QQQ trading at $44.
Sell To Open 1 contract of QQQ Jan44Put, Buy To Open 1 contract of QQQ Jan42Put and Buy To Open 1 contract of QQQ Jan41Put.
Choosing Strike Prices For Short Put Ladder Spread
Short Leg
The short leg of a Short Put Ladder Spread is usually the At The Money option or a strike price that is nearest the money. This is because the primary profit of a Short Put Ladder Spread, which is the net credit of the position made when the underlying stock remains stagnant or moves upwards, requires as high an extrinsic value as possible and At The Money options contain the highest extrinsic value within the same expiration month.
Middle Strike Price
The closer the middle strike price is to the strike price of the short leg, the more expensive it is and the lower the resultant net credit becomes. This results in a lower profit when the underlying stock remains stagnant or moves upwards but also a lower maximum loss. The further the middle strike price is to the short leg, the higher the net credit becomes, resulting in a higher profit when the underlying stock remains stagnant or moves upwards and also a higher maximum loss.
The further away the middle strike price is to the short leg, the further away the downside breakeven point becomes. This means that the underlying stock would have to drop more in order to start profiting to downside.
As such, in a Short Put Ladder Spread, options traders usually buy the middle strike price two strike prices lower than the short leg for stocks with strike prices at $1 interval or one strike price lower for stocks with strike prices at $5 interval, in order to obtain a more balanced risk profile.
Lower Strike Price
The difference in strike price between the middle strike and the lower strike determines the price range over which maximum loss will occur for a Short Put Ladder Spread. In our QQQ example above, maximum loss will occur when the QQQ closes between $42 (middle strike) and $41 (lower strike) by expiration. Increasing the strike difference between the lower strike and the middle strike results in only a very small increase in net credit but pushes back the lower breakeven point even further and increases the price range over which maximum loss occurs without significant decrease in maximum loss amount. As such, the lower strike price is usually bought one strike lower than the middle strike price in a Short Put Ladder Spread.
Trading Level Required For Short Put Ladder Spread
A Level 4 options trading account that allows the execution of credit spreads is needed for the Short Put Ladder Spread. Read more about Options Account Trading Levels.
Profit Potential of Short Put Ladder Spread
Short Put Ladder Spread profits in all 3 directions; When the underlying stock goes upwards (strongly or moderately), remains stagnant or goes downwards strongly. Indeed, the Short Put Ladder Spread has made profitable 4 out of 5 possible outcomes which makes its probability of profit extremely high.
For the stagnant and upwards movement, the Short Put Ladder Spread profits primarily through the net credit gained from writing the higher extrinsic value ATM put options and buying cheaper OTM put options. As long as the price of the underlying stock remains above the strike price of the ATM put options, the net credit is made as profit.
When the price of the underlying stock drops dramatically, it will come to a point beyond the strike price of the lower strike put options when the two long put legs will profit more than the single short put leg, resulting in unlimited profit to downside all the way to the stock becoming $0.
Profit Calculation of Short Put Ladder Spread
Maximum Upside Profit = Net Credit
Maximum Downside Profit = Unlimited
Maximum Loss = Short Put Strike – Higher Long Put Strike – Net Credit
Short Put Ladder Spread Calculations
Following up on the above example, assuming QQQQ at $46.50 at expiration.
Wrote the JAN 44 Put for $1.50
Bought the JAN 42 Put for $0.50
Bought the JAN 41 Put for $0.15
Net Credit = $1.50 – $0.50 – $0.15 = $0.85
Maximum Loss = 44 – 42 – 0.85 = $1.15
Max. Upside Profit = $0.85
Max. Downside Profit = Unlimited
Risk / Reward of Short Put Ladder Spread
Maximum Upside Profit : Limited to net credit received
Maximum Downside Profit: Unlimited (all the way to $0 stock price)
Maximum Loss: Limited
Break Even Point of Short Put Ladder Spread
There are 2 break even points to a Short Put Ladder Spread. Loss will occur if the underlying stock closes within the upper and lower breakeven point by expiration.
Upper BEP: Short Put Strike – Net Credit
Lower BEP: Lower Long Strike – Strike difference between short put and higher long put + Net Credit
Short Put Ladder Spread Breakeven Points Calculation
Upper BEP = $44 – $0.85 = $43.15
Lower BEP = $41 – ($44 – $42) + $0.85 = $39.85
Short Put Ladder Spread Greeks
Delta : Positive
Delta of Short Put Ladder Spread is positive at the start. As such, its value will increase as the price of the underlying stock increases. The short put ladder spread can start in delta neutral or slightly delta negative as expiration becomes longer.
Gamma : Negative
Gamma of Short Put Ladder Spread is negative for a start and will increase delta as the price of the underlying stock decreases, resulting in a downside loss. But shortly after, the Gamma of the Short Put Ladder Spread will begin to turn positive as the positive gamma of the two long put legs increase beyond the negative gamma of the short put leg. This will then decrease overall position delta into the negative allowing the position to profit to downside. The short put ladder spread can start in slightly positive gamma as expiration becomes longer.
Theta : Negative
Theta of Short Put Ladder Spread is negative for a start and will therefore lose value due to time decay in the short term prior to expiration as the long put legs lose value faster than the short put leg. However, as the short put leg contains more extrinsic value than the long put legs combined, theta will turn positive as expiration approaches, resulting in a profit even if the price of the underlying stock remains stagnant.
Vega : Increases with Length of Expiration
Vega of Short Put Ladder Spread can start slightly negative with near term options and increase to positive as longer expiration options are used. When this is the case, the position would profit on an increase in implied volatility, usually when the underlying stock declines.
Advantages Of Short Put Ladder Spread
:: Able to profit in 4 out of 5 possible moves in the underlying stock
:: Unlimited profit to downside
Disadvantages Of Short Put Ladder Spread
:: Small margin needed as it is a credit spread.

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