Investment Type: Debit
Strike Prices: ITM for bought leg, OTM for 1st sold leg, further OTM for 2nd sold leg
Expiration Month: Same expiration month for all legs, it can be current month or longer term
Composition: Buy lower strike Call + Sell middle strike Call + Sell higher strike Call

 
  Bull Call Ladder Profile Chart  
 

 
Description:

 

Bull Call Ladder is the extension of Bull Call Spread. When we perform Bull Call Spread, our intention is to reduce our initial cost of our Buy Call, with an OTM Sell Call. However with Bull Call Ladder, we add another Sell Call and the strike price is further OTM. Therefore further reduce the initial cost.

This results in better breakeven point with added unlimited risk if the stock price rises too much. Ideally, we want the stock price to be between sold leg and middle-strike bought leg.

.

 
  Example  
 

 

Entry:


Maximum Initial Investment = $5,000 (or based on 5% money management rule)

 

Stock Price :

 $34.00

   
Buy/Sell :

Buy

    
Strike Price :

32.5 Call

 } Premium: $2.15
Expiration Date :

December
No of Contracts :

40

    

 

Stock Price :
$34.00
   
Buy/Sell :
Sell
    
Strike Price :
35 Call
 } Premium: $0.80
Expiration Date :
December
No of Contracts :
40
    

 

Stock Price :
$34.00
   
Buy/Sell :
Sell
    
Strike Price :
37.5 Call
 } Premium: $0.20
Expiration Date :
December
No of Contracts :
40
    

 

Investment @ Entry = (Premium of lower strike Leg x No of Contracts x 100 Shares) + (Premium of medium strike Leg x No of Contracts x 100 Shares) + (Premium of higher strike Leg x No of Contracts x 100 Shares) = $8,600 + ($3,200) + ($800) = debit $4,600

 

Breakeven Point Down = Bought Leg + Net Debit = $32.50 + $1.15 = $33.65
Breakeven Point Up = (higher strike + middle strike – lower strike) – Net Debit = $37.50 + $35.00 - $32.50 – $1.15 = $38.85

 

Exit:

 

Best Case Scenario:

Stock Price :

 $35.00 up $1.00

    
Buy/Sell :

Buy

 } Premium: $2.50
Strike Price :

32.5 Call
Expiration Date :

December

 

Stock Price :

 $35.00 up $1.00

    
Buy/Sell :

Sell

 } Premium: $0.00
Strike Price :

35 Call
Expiration Date :

December

 

Stock Price :

 $35.00 up $1.00

    
Buy/Sell :

Sell

 } Premium: $0.00
Strike Price :

37.5 Call
Expiration Date :

December

 

Profit @ Exit = (Premium of lower strike Leg x No of Contracts x 100 Shares) + (Premium of medium strike Leg x No of Contracts x 100 Shares) + (Premium of higher strike Leg x No of Contracts x 100 Shares) – Investment @ Entry = $10,000 + $0 + $0 - $4,600 = $5,400

 

Return of Investment = Profit @ Exit / Investment @ Entry = 117%

 

Worst Case Scenario : Unlimited Loss

 

Stock Price
Profit/Loss
ROI

30.00

-115

-100%

32.50

-115

-100%

35.00

135

117%

37.50

135

117%

40.00

-115

-100%

42.50

-365

-317%