Lecture No 26
Bear Put Ladder
Rohan Sharma (Coach)

Basics Concepts – Bear Put Ladder
Proficiency -
Advanced
Direction –
Neutral
Volatility - Low
Asset Leg –
Short Put + Short
Put + Long Put
Max Risk -
Unlimited
Max Reward -
Unlimited
Income
Strategies

Description – Bear Put Ladder
 The Bear Put Ladder is an extension to the Bear Put Spread.
By shorting another put at a lower strike price, the position
assumes uncapped risk potential if the stock plummets
downwards.
 if the stock rises above the higher (buy) strike, you can
make a loss;
if the stock falls to anywhere between the middle and lower
(short) strikes, you make your maximum profit;
if the stock falls below the lowest strike, then you can make
unlimited losses. The extra leg also ensures that you may
have two breakeven points.

Description – Bear Put Ladder
Sell lower strike puts.
Sell the same number of middle strike puts with the same
expiration date.
Buy the same number of higher strike puts with the same
expiration date.

Context - Bear Put Ladder
Outlook
A Bear Put Ladder is a Bear Put Spread financed by selling an
additional put further OTM.
•Rationale
To execute a direction neutral/conservatively bearish trade
for enhanced income. The lower strike sold puts will have the
effect of uncapping your potential risk.

Context - Bear Put Ladder
Net Position
This can be a net debit or net credit trade because while
your bought puts will be more expensive than your sold puts,
you’re selling more puts that you’re buying. Most of the time
this is likely to be a net debit trade.
Your maximum risk on the trade is uncapped to the
downside because you are selling more puts than you’re
buying.

Context - Bear Call Ladder
Effect of Time Decay
 Time decay is generally helpful when the position is profitable,
particularly around the middle strike.
Time Period to Trade
You will be safest to choose a shorter term to expiration in order to
avoid the possibility of an uncapped loss scenario if the underlying
asset falls too much.
Breakeven Down = [Lower strike - maximum reward]
Breakeven Up [Higher strike + net debit]

Steps to Trading a Bear Put Ladder
Steps In
Try to ensure that the trend is downward but identify a clear area of
support and resistance.
Steps Out
• Manage your position according to the rules defined in your Trading
Plan.
• If the stock rises above your stop loss, then sell the Long Put, and if
you’re not permitted to trade Naked Puts, then unravel the entire
position.

Exiting the Trade - Bear Put Ladder
Exiting the Position
 With this strategy, you can simply unravel the spread by buying
back the puts you sold and selling the puts you bought in the first
place.
Advanced traders may leg up and down as the underlying asset
fluctuates up and down. In this way, the trader will be taking
smaller incremental profits before the expiration of the trade.
Mitigating a Loss
Unravel the trade as described previously.
Advanced traders may choose to only partially unravel the spread
leg-by-leg.

Advantages and Disadvantages
Advantages
Lower cost and better breakeven scenario than a Bear Put
Spread.
The farther away from expiration you are, the more downside
protection you have in the event of the stock declining rapidly.
Disadvantages
Confusing as to whether this is a bullish or bearish strategy.
Capped upside if the stock rises.
Uncapped downside if the stock falls.
Typically used as a repair to a Bear Put Spread; therefore, this is
only for more advanced traders.

Real Time
Example
Rohan Sharma (Coach)

Price Movement
Position on Charts
Rohan Sharma (Coach)

Example – Bear Put Ladder
Market Behavior Nifty
Option /Future Buy ITM PUT & Sell ATM & OTM PUT
Action (Long/ Short) Both
Price Movement Expectation DownSide / Side Ways
Spot Price 11700
Strike Price (Short ITM Put) 11800 Premium 140
Strike Price (Long ATM Put) 11700 Premium 100
Strike Price (Long OTM Put) 11600 Premium 50
Break Even (Up) (Higher Strike) + Net Debit = (11800 + 10) = 11810
Break Even (Down) Lower Strike - Net Debit = (11600 - 10 ) = 11590
Time to Expiry Mid/Last of the Month
Position of Price in Charts At Absolute Top / Lower Top in Downward Trend
Max Risk Limited
Max Reward Un Limited

Bear Put Ladder
Short ITM Put 11800 Premium 140 BEP 11660
Long ATM Put 11700 Premium 100 BEP 11600
Long OTM Put 11600 Premium 50 BEP 11550
Nifty at Expiry SHORT ITM Put
BEP – 11660
Long ATM Put
BEP – 11600
Long OTM Put
BEP - 11550
Total P&L
12200 140 -100 -50 -10
12100 140 -100 -50 -10
12000 140 -100 -50 -10
11900 140 -100 -50 -10
11800 140 -100 -50 -10
11700 40 -100 -50 -110
11600 -60 - -50 -100
11500 -160 100 50 -10
11300 -360 300 250 190