Bear Call Ladder

Bear Call Ladder -  Buy lower strike Call, Buy middle strike Call, Sell higher strike Call

Strategies...

•         Sell lower strike Call (OTM)
•         Buy middle strike Call with the same expiration date.
•         Buy higher strike Call with the same expiration date.
•         Extension to Bear Call Spread strategy by buying another call at higher strike.
•         Longer-term strategy, cause we net long position.
•         Make uncapped profit if stock price rises above higher strike.

Example...

Best Buy Co., Inc.(NYSE:BBY) is traded at $19.20 on May 29, 2012.

•             Sell Sep 2012 $20 Call option for $1.49.
•             Buy Sep 2012 $22 Call option for $0.84.
•             Buy Sep 2012 $24 Call option for $0.44.

Bear Call Ladder

 How does Bear Call Ladder work...

Bear Call Ladder

  

Net premium gain:             $1.49 - $0.84 - $0.44 = $0.21

Maximum Profit:                Uncapped potential profit

Maximum Loss:                  $22 - $20 - $0.21 = $1.79
                                            (Middle strike - Lower strike - net premium gain)

Breakeven (Downside):      $20.00 - $0.21 = $19.79                                    
                                            (Lower strike - net premium gain)

Breakeven (Upside):         $24.00 + $1.79 = $25.79                                  
                                          (Higher strike  +  maximum loss)