Put Ladder

What is a Put Ladder?

A put ladder (also called a long put ladder or bear put ladder) is the bearish mirror of a call ladder. You buy one put at the highest strike, sell one put at the middle strike, and sell another put at the lowest strike. It is a bear put spread with an extra short put at the bottom.

The trade profits when the stock drops moderately — to the middle strike area. But if the stock crashes through the lowest strike, that extra short put turns the trade into a significant loser. You are bearish, but only moderately so. A crash is not your friend.

The benefit is cost reduction. Selling two puts against one long put makes the trade much cheaper (or even a net credit). The trade-off is the risk below the lowest strike.

How to Set It Up

• Buy 1 put at the highest strike (A)
• Sell 1 put at the middle strike (B)
• Sell 1 put at the lowest strike (C)
• All same expiration
• Strike spacing: Typically equal intervals. For example: 105/100/95 or 100/95/90.
• Expiration: 30-60 days.
• Net cost: Small debit or possibly a credit thanks to the two short puts.

The position is a bear put spread (A-B) plus a naked short put (C). The naked put is where the risk lives.

When to Use This Strategy

Use a put ladder when:

• You are moderately bearish with a specific downside target
• You want to reduce the cost of a bearish trade significantly
• You believe the stock will pull back but not crash
• You have a plan if the stock drops below the lowest strike
• There is a support level you trust below the lowest put strike

This strategy works best in orderly declines, not panics. A gradual drift to your target is ideal. A sudden crash is the worst-case scenario.

Example Trade

Stock XYZ is trading at $100. You expect it to pull back to $95 but not crash.

• Buy 1 XYZ $100 put for $4.00
• Sell 1 XYZ $95 put for $2.00
• Sell 1 XYZ $90 put for $0.80
• Net debit: $4.00 - $2.00 - $0.80 = $1.20 ($120 total)

If XYZ drops to $95: The $100 put is worth $5. Both short puts expire worthless. Profit: $5 - $1.20 = $380. Max profit.

If XYZ drops to $90: The $100 put is worth $10, the $95 put costs $5, the $90 put is at the money. Net: $10 - $5 - $1.20 = $380. Still max profit.

If XYZ drops to $85: The $100 put is worth $15, the $95 put costs $10, the $90 put costs $5. Net: $15 - $10 - $5 - $1.20 = -$120 loss. Near breakeven.

If XYZ crashes to $75: The $100 put is worth $25, the $95 put costs $20, the $90 put costs $15. Net: $25 - $20 - $15 - $1.20 = -$1,120 loss. The naked short put is devastating.

If XYZ rallies above $100: All puts expire worthless. Loss: $120 (just the debit).

Risk and Reward

• Max profit: (Higher strike - middle strike - net debit) x 100. ($5 - $1.20) x 100 = $380. Achieved when the stock is between the middle and lowest strike.
• Max loss: Significant below the lowest strike. If the stock goes to zero, the loss is (lowest strike - max profit value) adjusted for the debit. On the upside, max loss is just the net debit ($120).
• Breakeven: Upper breakeven: highest strike - net debit = $98.80. Lower breakeven: approximately $86.20 (depends on strike math).

The risk is asymmetric. Small loss on the upside, great profit in the middle, and growing losses below.

Tips and Common Mistakes

• Set a stop at the lowest strike. If XYZ breaks below $90, close or adjust the trade. Do not let the naked short put run against you.
• Consider adding a long put below. Buying a put at $85 would cap the risk and turn this into a put condor.
• Crashes are the enemy. This trade does not benefit from a market panic. If there is any chance of a crash (earnings, macro events), think twice.
• Use it on stocks with clear support. If there is strong technical support just below the lowest strike, the risk is more manageable.
• Compare to a bear put spread. Simpler and safer, but more expensive to enter.

Related Strategies

• Bear Put Spread — two-leg bearish spread with defined risk
• Christmas Tree Put — similar multi-strike bearish trade
• Put Ratio Spread — related structure with ratio legs