Bull Put Ladder

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

Strategies...

•         Buy lower strike Put(OTM)
•         Buy middle strike Put (OTM) with the same expiration date.
•         Sell higher strike Put (OTM) with the same expiration date.
•         Bull Put Ladder is a Bull Put Spread with a additional put leg.
•         Extension to Bull Put Spread strategy by buying another put at lower strike.
•         Short-term income strategy

Example...

Microsoft Corporation (NASDAQ:MSFT) is traded at $29 on May 25, 2012.

•             Buy July 2012 $24 Put option for $0.15.
•             Buy July 2012 $26 Put option for $0.32.
•             Sell July 2012 $28 Put option for $0.74.

Bull Put Ladder

How does Bull Put Ladder work...

Bull Put Ladder Table

Net premium gain:             $0.74 - $0.15 - $0.32 = $0.27

Maximum Profit:                $24 - $0.27 = $22.27
                                             (Lower strike - net premium gain)

Maximum Loss:                  $28 - $26 - $0.27 = $1.73
                                            (Higher strike - middle strike - net premium gain)

Breakeven (Downside):      $24.00 - $1.73 = $22.27                                     
                                            (Lower strike - maxium loss)

Breakeven (Upside):         $28.00 - $0.27 = $27.73                                     
                                          (Higher strike  - net premium gain)