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Payoff Schedule Payoff Chart: NIFTY at Expiry Net Payoff

This document describes a short put ladder options strategy. It involves selling an in-the-money put, buying an at-the-money put, and buying an out-of-the-money put. The maximum gain is limited if the underlying rises, but unlimited potential profit exists if it falls due to the long put. The strategy is used when neutral to bearish on the market and expecting high volatility. Risk is limited while reward is unlimited. Breakeven occurs when total strike prices of long puts minus the short put strike equals the net premium received.

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80 views2 pages

Payoff Schedule Payoff Chart: NIFTY at Expiry Net Payoff

This document describes a short put ladder options strategy. It involves selling an in-the-money put, buying an at-the-money put, and buying an out-of-the-money put. The maximum gain is limited if the underlying rises, but unlimited potential profit exists if it falls due to the long put. The strategy is used when neutral to bearish on the market and expecting high volatility. Risk is limited while reward is unlimited. Breakeven occurs when total strike prices of long puts minus the short put strike equals the net premium received.

Uploaded by

AKSHAYA AKSHAYA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Payoff Schedule Payoff Chart

NIFTY @ Expiry Net Payoff ( ) 20000


5100 -500
5200 -500 15000

5300 -500
10000
5400 -500
5500 -5500 5000
5600 -5500
5700 -500 0
5300 5400 5500 5600 5700 5800 5900 6000
5710 0
-5000
5800 4500
5900 9500 -10000

6000 14500

In the above chart, the breakeven happens the moment Nifty crosses 5710 (since net outflow is 10). The
reward in such a strategy is unlimited. The risk is limited to 5500 [calculated as (Difference in strike prices +
net premium paid) * Lot Size].

In the above illustration there is a net outflow for the investor. If for any other case there is a net inflow, there
would be one lower breakeven point. The point will be calculated as (Sell Call Strike price + net premium
received).

Disclaimer

Page 41
Short Put Ladder
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.

Risk: Limited.

Reward: Unlimited.

Breakeven: Total Strike prices of Long Puts - Strike price of Short Put +/- net premium received/paid.

Illustration

Eg. Nifty is currently trading @ 5500. Selling Put Option of Nifty having Strike 5600 @ premium 140,
buying Put Option of Nifty having Strike 5400 @ premium 60 and Put Option of Nifty having Strike 5500 @
premium 100 will help investor benefit if Nifty expiry happens below 5300.
Strategy Stock/Index Type Strike Premium
Short Put NIFTY(Lot Buy PUT 5400 60
Ladder size 50) (Outflow)
Buy PUT 5500 100
(Outflow)
Sell PUT 5600 140
(Inflow)

The Payoff Schedule and Chart for the above is below.

Page 42

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