Short Put Ladder is a strategy that must be devised when the investor is neutral to bearish on the market direction and expects volatility to be significant in the market.
A Short Put Ladder strategy is formed by selling “In-the-Money” Put Option, buying one “At-the-Money’ Put Option and one “Out-of-the-Money” Put Option.
Maximum gain for the Short Put Ladder strategy is limited if the underlying goes up.
However, if the underlying rallies downwards, potential profit is unlimited due to the extra Long Put.
Investor view: Neutral on direction and bullish on Stock/ Index volatility.
Breakeven: Total Strike prices of Long Puts – Strike price of Short Put +/- net premium received/paid.