Bear Put Ladder

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

Strategies...

•         Sell lower strike Put
•         Sell middle strike Put with the same expiration date.
•         Buy higher strike Put with the same expiration date.
•         Extension to Bear Put Spread strategy by shorting another Put at lower strike.
•         Short-term strategy, cause of uncapped risk.
•         Maximum Profit if stock falls between the middle and lower strikes.

Example...

Amazon.com, Inc.(NASDAQ:AMZN) is traded at $215 on May 29, 2012.

•             Sell Jun 2012 $200 Put option for $2.20.
•             Sell Jun 2012 $210 Put option for $4.90.
•             Buy Jun 2012 $220 Put option for $9.80.

Bear Put Ladder

  

How does Bear Put Ladder work...

Bear Put Ladder

Net premium paid:             $9.80-$4.90-$2.20=$2.70

Maximum Profit:                $220 - $210-$2.70=$7.30
                                             (Lower strike - (Higher strike - Middle strike) + net premium paid)

Maximum Loss:                  $200 -($220-$210) + $2.70 = $192.7
                                           (Lower strike - (Higher strike - Middle strike) + net premium paid)

Breakeven (Downside):      $200 - $7.30 = $192.7                                     
                                            (Lower strike - maximum profit)

Breakeven (Upside):         $220 - $2.70 = $217.30                                    
                                          (Higher strike  - net premium paid)