Strategies · Library · Options
§2.17Trend
Bear put ladder
A put spread plus a second sold put at a still lower strike, bringing in extra credit. Gains in a moderate fall, but a crash past the lowest strike stops the profit and starts a loss.
- 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 bearish, or neutral with low volatility; expects a mild fall and no collapse.
- Entry and exit
- Buy a near-the-money put, sell a lower-strike put, sell another still-lower put, same expiry. Close before the stock reaches the lowest strike or at expiry.
- Sizing
- 1:1:1 (one long put, two short puts at lower strikes)
How it fails
- Maximum loss occurs if the stock crashes below the lowest breakeven
- Best gain sits at the middle strike
- Net debit, credit, or near zero at entry
- Extra short put raises 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 slides modestly but is unlikely to collapse. Paper only.
Short puts cannot be held in a long-only builder.
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, §2.17, p. 24 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.