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Bullish Patterns
Long Calls
Bull Call Spread
Bull Put Spread
Call Backspread
Long Call Ratio Spread
Naked Put
Synthetic Long Stock
The Collar
Covered Calls
Synthetic Long Call
Synthetic Short Put
Covered Straddle
Covered Strangle
Married Put
Protective Put

Bearish Patterns
Long Puts
Bear Put Spread
Bear Call Spread
Put Backspread
Long Put Ratio Spread
Naked Calls
Synthetic Short Stock
Synthetic Short Stock (split strikes)
Covered Put
Protective Call
Synthetic Short Call
Synthetic Long Put

Long Volatility
Long Straddle
Long Strangle
Short Call Butterfly
Short Put Butterfly
Short Iron Butterfly
Short Call Condor
Short Put Condor
Short Iron Condor
Long Guts
Strip
Strap
Short Call Ladder
Short Put Ladder
Long Call Synthetic Straddle
Long Put Synthetic Straddle

Short Volatility
Short Straddle
Short Strangle
Long Call Butterfly
Long Put Butterfly
Long Iron Butterfly
Long Call Condor
Long Put Condor
Long Iron Condor
Short Guts
Long Call Ladder
Long Put Ladder
Call Ratio Spread
Short Call Ratio Spread
Put Ratio Spread
Short Put Ratio Spread
Ratio Call Write
Ratio Put Write
Short Call Synthetic Straddle
Short Put Synthetic Straddle
Variable Ratio Write

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Long Put Ladder

Risk: limited but very big
Reward: limited

General Description
Entering a long put ladder entails selling (1) lower strike put, selling (1) middle strike put and buying (1) higher strike put (same expiration month). It can be thought of as a short put ratio spread which staggers the short puts instead of using the same strike. It's also similar to a higher strike bear put spread with an extra naked put at a lower strike.

(draw a long put ladder risk diagram here)

The Thinking
You're confident a stock will trade in a tight range or possibly move down slightly. A bear put spread will profit in such a situation because the decline in value of the long put will be more than offset by the time decay of the naked put. Then an additional put is sold at a lower strike. This helps finance the trade and results in a more favorable breakeven level.

Example

XYZ is at $55.00. You buy (1) 60 put for $7.00 and sell (1) 55 put for $3.00. This is a bear put spread. Then you sell (1) 50 put at $1.00. The net debit is $3.00.

Above the highest strike, all puts expire worthless, and your loss is the net debit paid when the trade was initiated.

Below the lowest strike, all puts expire in-the-money. The profit from the long put will be canceled out by the loss from one of the short puts, and the remaining short put will increase in value point-for-point with the underlying. For example, at $45, the 50 put will be worth $5 ($4.00 loss), the 55 put will be worth $10 ($7.00 loss) and the 60 put will be worth $15 ($8.00 gain). The net of this is a $4.00 loss, and the loss continues to grow as the stock drops.

Between the two lowest strikes ($50.00 and $55.00) max profitability is achieved. As an example, at $55, the 50 and 55 puts will expire worthless ($1.00 gain and $3.00 gain) and the 60 put will be worth $5 ($2.00 loss). The net is a $2.00 profit.

The PL chart below graphically shows where this trade will be profitable and at a loss.