Long Call Ladder
The Long Call Ladder is a limited profit, unlimited risk strategy in options trading. The Long Call Ladder is used when the trader believes that the underlying will not experience much volatility in the near term. The Long Call Ladder is constructed as follows:
The Long Call Ladder is like an extension to the Bull Call Spread in that the trader sells another higher strike call. The purpose of shorting another call is to further finance the cost of establishing the spread position at the expense of being exposed to unlimited risk in the event that the underlying price rallies significantly. The strategy has limited downside risk, but unlimited risk on the upside (see payoff chart below).
The opposite strategy, the Short Call Ladder, also know as the Bear Call Ladder, is an unlimited profit strategy with limited risk, and is used when significant volatility is expected.
