Ladder Option

DEFINITION of 'Ladder Option'

An option that locks-in gains once the underlying reaches predetermined price levels or "rungs," guaranteeing some profit even if the underlying security falls back below these levels before the option expires.

BREAKING DOWN 'Ladder Option'

For example, consider a ladder call option with an underlying price of 50, with a strike price of 55 and rungs at 60, 65 and 70. If the underlying price reached 62, the profit would be locked-in to be at least 5 (60-55); however, if the underlying reached 71, then the profit would be locked-in to being at least 15 (70-55), even if the underlying falls below these levels before the expiration date.

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RELATED FAQS
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    Learn how aspects of an underlying security such as stock price and potential for fluctuations in that price, affect the ... Read Answer >>
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    Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might ... Read Answer >>
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