Put Ladder

A Put Ladder is a combination of an in-the-money put, an at-the-money put and another put strike further out-of-the-money of the same expiration date.

Long Put Ladder

Payoff Diagram:

Direction Assumption: Moderately Bearish

Maximum Profit: Limited

Maximum Loss: Unlimited

Breakeven Price: • On the lower end, Long Put strike plus the net debit paid. • On the higher end, 2 Short Put strikes minus Long Put strike minus the net debit paid.

Theta: • If underlying price is trading either below the lower breakeven or above the higher breakeven price -> Negative • If underlying price is trading between the two breakeven prices -> Positive

Volatility: Negative

Short Put Ladder

Payoff Diagram:

Direction Assumption: Moderately Bullish

Maximum Profit: Limited

Maximum Loss: Unlimited

Breakeven Price: • On the lower end, Short Put strike plus the net credit received. • On the higher end, 2 Long Put strikes minus Short Put strike minus the net credit received.

Theta: • If underlying price is trading either below the lower breakeven or above the higher breakeven price -> Positive • If underlying price is trading between the two breakeven prices -> Negative

Volatility: Positive