A-Z Bear Call Ladder Strategy | Motilal Oswal

A-Z Bear Call Ladder Strategy

Options trading is a complex task that involves a complete understanding of the markets and the securities you are dealing with. Options trading based on just indicators or candlestick patterns is a recipe for disaster. Hence, many traders incorporate different option trading strategies in their trading setup. While there are thousands of strategies, this is the most tested strategy across derivatives. In this article, we will understand what a bear call ladder strategy is and how you can use it for churning profits in the markets.

What is a Bear Call Ladder Strategy?

The bear in this strategy's name should not let you believe that this strategy is for bears. Instead, it is a strategy for call options and is usually implemented to gain net credit for the premium amount.

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The strategy includes buying and selling three different securities contracts. Hence, it is categorized as the three-legged strategy. Here, you sell an in-the-money call option in the market, then buy one above-the-money all option and one over-the-money call option contract.

When to Execute This Strategy?

The best time to execute this strategy is when you have a positive outlook on the market. Suppose you are trading index options, and the nifty index is at 17000 at the moment, and you see that it can go up to 17500 in the coming sessions; you should think of applying this strategy.

Before you execute this strategy, you should always ensure that all the call options you buy and sell are related to the same expiry date. Moreover, the call options should be based on the same security or index you are trading. In the end, the ratio is even more important to realize the benefits of this strategy.

What are the Advantages of Using This Strategy?

The biggest advantage of using this strategy is its unlimited reward potential. Many traders use this strategy when identifying a possible uptrend movement in the trading instrument. If your bear call spread does not reap good profits, it is time to switch to this strategy, where the downside is limited, and the upside potential is quite remarkable.

What are the Disadvantages of Using This Strategy?

Time decay is the biggest enemy of all option traders. Without movement in the underlying security, the option will start losing its value due to time decay. When the security stands between the lower and middle strike prices, time decay significantly affects your profits.

Trading options can be challenging, but not when you have a lot of options and real-time order execution and confirmation from a trusted broker. Open your trading account in minutes and implement the bear call ladder strategy in the next market session with us.


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