A Bull Call Ladder Spread involves buying one call option at a lower strike price and selling multiple call options at higher strike prices. It profits from a limited price rise but carries risk if the price rises sharply.
- Ideal for moderately bullish conditions, where a limited price rise is expected.
- Selling additional OTM calls increases premium income but caps profit and increases risk for sharp price increases.
- Risk increases significantly beyond the sold strikes, but profit is capped for moderate price increases.
Example:
- NIFTY trading at 18,000.
- Buy 18,000 Call at ₹200, sell 18,300 Call at ₹100, and sell 18,500 Call at ₹50 (lot size = 50).
- Outcome:
- If NIFTY rises to 18,300 at expiry:
- Gain on bought call = ₹300 × 50 = ₹15,000.
- Loss on sold calls = ₹0.
- Net profit = ₹15,000 − ₹2,500 (net premium) = ₹12,500.
- If NIFTY rises to 18,600 at expiry:
- Gain on bought call = ₹600 × 50 = ₹30,000.
- Loss on sold calls = ₹300 × 50 = ₹15,000 (18,300 Call) + ₹100 × 50 = ₹5,000 (18,500 Call).
- Net loss = ₹30,000 − ₹20,000 − ₹2,500 = ₹7,500.
- If NIFTY stays below 18,000 at expiry:
- All options expire worthless.
- Net loss = ₹2,500.
- If NIFTY rises to 18,300 at expiry: