Ladder Options - Using Long and Short Ladders with Calls and Puts

Most option traders know vertical spreads, but fewer take advantage of the ladder option. What happens if you add a third leg to the trade? How do strategies like a call ladder or put ladder behave when the market moves fast? This article breaks down the ladder option meaning and real use cases.

Key Takeaways

• The ladder option is a strategy family with 4 types: long and short versions using either calls or puts.
• Long ladders profit from moderate moves and can lose big on strong moves toward the short leg side.
• Short ladders can profit from big moves, but often carry higher upfront costs.
• Ladder strategies are similar to ratio spreads but use more distant strikes for the extra leg. This gives them higher potential profit or more credit (or lower cost), depending on the structure.

Ladder Option Meaning and Structure

The ladder option includes four strategies: long and short setups using either calls or puts. What makes them different from a regular vertical spread is the third leg. Instead of two options, a call ladder or put ladder adds one more out-of-the-money contract (or less in-the-money), changing how the position behaves when the price moves.

A call ladder adds an extra leg above the higher strike. A put ladder adds one below the lower strike. Depending on whether you’re building a long or short ladder, this third leg is either sold (long ladder) or bought (short ladder).

This third leg creates an asymmetric payoff:

• Long ladders reduce cost but expose you to large losses on strong moves
• Short ladders cost more but open the door to large profits if the market moves hard

Here is a quick glance at the typical P&L profiles of the different option ladder strategies:

Ladder option meaning comes down to this: you’re tweaking a spread to shift risk and reward. One side will look safer, the other more dangerous. You choose the side based on your market view.

The following infographic sums up the ladder option strategies for you:

Long Call Ladder (Bull Call Ladder) - Strategy Explained

The long call ladder, also known as a bull call ladder, combines three legs: buy one lower strike call, sell two calls at higher strikes. It works best in a moderately bullish market. Compared to a bull call spread, this ladder option has lower cost but adds risk if the stock rallies too far.

Key points to consider:

• Max profit happens between the short strikes
• Capped losses if price drops below the first strike
• Unlimited loss risk if price spikes far above the top strike

This setup improves reward in stable markets but adds danger on big upside moves.

Long Call Ladder Example

Let’s say AAPL is trading at $210.79. You think the rally is nearly over, but you don’t expect a crash either. This is where a long call ladder can make sense. You want to benefit from a slowdown without risking much if the price dips.

You pick an expiration one month out and set up the ladder option like this:

• Buy 1 call at the $180 strike
• Sell 1 call at the $195 strike
• Sell 1 more call at the $205 strike

This is a classic call ladder: one long, two shorts. You collect a net credit thanks to the extra premium from the second short call.

Here’s what your long call ladder P&L chart will look like when you rely on the custom scan feature of our options market screener:

In short:

• Max profit is between $195 and $205
• You will profit as long as AAPL stays between $183.20 and $216.80
• Losses are capped around $300 if AAPL drops
• Big risk starts if AAPL rises beyond $216.80

If AAPL remains in the middle zone of the chart, this setup can return over $1,000. But if the stock rips higher, both short calls move deep in the money, and the losses grow fast. This is the trade-off you accept when using this ladder option structure.

Long Put Ladder (Bear Put Ladder) - Strategy Explained

The long put ladder, or bear put ladder, is built by buying one higher strike put and selling two lower strike puts. It works best when you expect a moderate drop in price. Like other ladder option setups, it uses the extra short leg to reduce cost but adds risk on large moves.

Key features you should keep in mind:

• Top profit zone if price remains between the first two strikes
• Large losses if price drops too far below the lowest strike
• Net credit or low debit due to extra premium from second short put

In short, we would say that this setup is not for crash scenarios, since it punishes deep declines.

Long Put Ladder Example

Let’s use AAPL again, currently trading at $210.79. You think the stock won't crash in the next few weeks, but you also don’t expect it to rally much. In this case, a long put ladder might fit your view. It’s a ladder option that rewards stability with a slightly bearish tilt.

Here’s one way to build it, using options that expire in a month:

• Sell 1 $185 put
• Sell 1 $215 put
• Buy 1 $225 put

This setup often brings in a credit, since you’re selling two puts and buying one (the net credit or debit position will actually depend on the options prices). You profit if AAPL trades between $181.15 and $218.84, with a sweet spot between $185 and $215 where your gain could top $400. Your long put ladder P&L chart will be the following:

Risk zones:

• If AAPL rises above $218.84, you start losing money, but the loss is capped around $600
• If AAPL stays range-bound, you profit
• If AAPL drops below $181.15, losses grow without limit

This structure is not like a typical put ladder or call ladder where the danger is often on the upside. Here, the risk shifts to the downside. That’s what makes the ladder option meaning interesting - the tradeoff depends on which side you stretch with the third leg.

Short Call Ladder (Bear Call Ladder) - Strategy Explained

The short call ladder, or bear call ladder, involves selling one lower strike call and buying two calls at higher strikes. This ladder option works well when you expect a strong upward move in a volatile market. Unlike a standard call ladder, this setup offers unlimited upside and capped risk.

What you get:

• Max loss is between the two long call strikes
• Profit grows as price rallies beyond the top strike
• Higher initial cost due to buying two calls

If the move is big and fast, this structure turns risk into opportunity without needing to predict exact levels.

Short Call Ladder Example

Again, keep in mind that AAPL is trading at $210.79. Let’s say you expect a big move soon but aren't sure which direction (although, you feel it’s more likely that this will happen to the upside, rather than to the downside). If that’s your view, the short call ladder might be a good fit. This option ladder profits from volatility in either direction, as long as the stock doesn’t stall in the middle range.

Here’s the setup with a one-month expiration:

• Sell 1 call at $180
• Buy 1 call at $195
• Buy 1 call at $205

This call ladder structure creates a risk zone between $195 and $205, where you could lose over $1,000. You can see this in the short call ladder P&L chart below:

But outside that range, things improve:

• Max profit of $300 if AAPL ends below $183.20
• Unlimited profit if AAPL rallies hard beyond $216.80

You’re giving up a lot if the stock stays quiet. But if volatility picks up, this ladder option gives you a shot at a big win.

Short Put Ladder (Bull Put Ladder) - Strategy Explained

The short put ladder, also called a bull put ladder, is built by selling one higher strike put and buying two lower strike puts. This ladder option benefits from sharp drops in price and performs best in bearish or highly volatile markets. The setup flips the usual put ladder option meaning on its head.

Key details:

• Max loss happens if price stays between the first two strikes
• Big profits come if price breaks down well below the lowest put
• Small gain or breakeven if price moves up

You can see it as way to bet on a crash without taking unlimited loss risk.

Short Put Ladder Example

As one last trade, consider again AAPL, trading at $210.79. You expect a move, but don’t know if it’ll be a rally or a drop (however, you think the chances for a downside fall are higher than those of an upside tick). The short put ladder fits this view. With one month to expiration, here’s a possible setup:

• Buy 1 $205 put
• Buy 1 $217.5 put
• Sell 1 $235 put

And your short put ladder P&L graph will look as follows:

This ladder option profits if AAPL breaks out in either direction. As the P&L chart shows:

• You profit if price goes below $203.63 or above $218.75
• Max loss (around $100) if AAPL stays between $205 and $217.5
• Profit capped over $1,500 if price rises significantly
• Potentially unlimited gain if price drops hard below $203.63