Contents

Bear Call Ladder

Bear Call Ladder can be thought of as a combination of a Bear Call Spread and a Long Call. Usually, a Bear Call spread is set up when the outlook is Bearish. But, in a Bear Call Ladder, an additional Call is bought along with the Bear Call Spread as an adjustment if the outlook turns bullish.

This strategy should be executed above the resistance line identified for the short term. First, set up a Bear Call Spread and hold it as long as price does not break resistance. If price breaks the resistance and turns bullish, immediately buy a higher strike OTM call to adjust the position and turn it into a Bear Call Ladder.

Trade Set-Up

.

Sell Lower Strike Calls

Eg: Sell 10000 CALL

short call-Finvezto

Buy a slightly Higher Strike or Middle Strike CALL

Eg: Buy 10100 CALL

Naked Call 1-Finvezto

Buy another Higher strike CALL

Eg: Buy 10200 Call

Naked Call 1-Finvezto

Bear Call Ladder

 

 

Bear Call Ladder-Finvezto

Illustration Using Nifty Options

.
Bear Call Ladder-Finvezto
Snapshot from Upstox.com Strategy Builder

In the pay-off graph above, the price of the underlying asset (Nifty) is plotted in the X-Axis and the profit/loss is plotted in the Y-Axis.

The black line with dots indicates the profit or loss at different prices of the underlying asset.

The region shaded in green indicates profitable zone and the region shaded in grey indicates loss zone.

A positive number (75 = Buy 1 lot) in the Quantity column indicates a Buy position and a negative number (-75 = Sell 1 lot) indicates a Sell position.

Entry Checklist

.
Market Outlook
  • Bear Call Ladder is executed in two phases. In the first phase, you will set up a Bear Call Spread. That is, you will first Sell a CALL at a lower strike and Buy a CALL at a slightly higher strike. Two legs are established first. When you do this, your outlook is bearish. But, if the market turns bullish against your prediction, you will quickly buy a CALL at a higher strike price to adjust the Bear Call Spread and make it into a Bear Call Ladder.
  • Volatility
  • Execute this strategy when the market volatility is low and on the rise
  • Strike Price
  • Sell the Lower Strike CALL at a strike price above the resistance zone, preferably OUT-of-the-Money CALLs that expire worthless
  • Buy the higher strike Calls further Out of the Money
  • Risk Profile

    .
    Risk [Loss]
  • Maximum Loss is limited and occurs when price ends near the middle strike.
  • Reward [Profit]
  • Maximum profit is unlimited for a Bear Call Ladder when the price shoots up significantly
  • Options Greeks Impact

    .
    Time Decay Impact [Theta]
  • Time decay is helpful around the lower strike CALL and harmful around the higher strike CALLs
  • Volatility impact [Vega]
  • Increase in Volatility is helpful around the higher strike CALLs and harmful around the lower strike CALL.
  • Trade Management & Exit

    .
    Exit Conditions
  • There are two ways to exit.
  • If you set this strategy up as Bear Call Spread initially, then you can book profits when the price stays below the resistance zone. You can book profits as the difference between the spreads keep coming down. You can close the position once you receive 50% of the net premium or manage it with a stop loss once you receive bulk of the premium.
  • But, if the price breaks the resistance level, you will buy a CALL to adjust the position. If the price shoots up significantly, manage the highest strike CALL with a tight stop loss as there is a huge chance for price to come back and retest the resistance level. The higher strike CALL option might decay heavily when that happens. So, it is wise to book profits on the higher strike OTM call and continue holding the spread.