Strategies · Library · Options
§2.14Trend
Bull call ladder
A call spread plus a second sold call at an even higher strike, bringing in extra credit. Gains in a moderate rise, but a sharp surge past the top strike starts losing money.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Cautiously bullish, or neutral with low volatility; expects a modest rise and no blow-off.
- Entry and exit
- Buy a near-the-money call, sell a higher-strike call, sell another still-higher call, same expiry. Close before the stock approaches the top strike or at expiry.
- Sizing
- 1:1:1 (one long, two shorts at different higher strikes)
How it fails
- Loss is unlimited if the stock surges past the top breakeven
- Maximum gain sits between the middle strike and the top breakeven
- May be a small debit, credit, or near zero
- Extra short call adds early-assignment and margin risk
Data it needs
- options chain with strikes and premiums
- implied volatility by strike and expiry
- underlying daily price
ARCANE has the underlying daily close but no options chains, strikes or implied volatilities
How ARCANE uses it
Matches a Call that a price rises moderately but does not run beyond a stated upper level. Paper only.
Two short calls and a long call cannot be built long-only.
Filed under the trend card
Hold each market in the direction of its own return over the past year, and size every position to the same expected volatility.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 100% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.14, p. 23 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.