---
description: "A bullish-adjusted strategy selling a near-ATM call at K1 and buying two higher OTM calls at K2 and K3, arising when a bear call spread is adjusted for a stock that trades higher."
tags: [options, hedging, bullish, ladder]
---

# Bear Call Ladder

**Section**: 2.16 | **Asset Class**: Options | **Type**: Hedging

## Overview
The bear call ladder is a vertical spread consisting of a short call at K1 (near ATM), a long call at K2 (OTM), and a long call at K3 (further OTM, K3 > K2 > K1). A bear call ladder typically arises when a bear call spread goes wrong (the stock trades higher), so the trader buys another OTM call at K3 to adjust the position to bullish.

## Construction
- Sell 1 call option at strike K1 (near ATM)
- Buy 1 call option at strike K2 (OTM, K2 > K1)
- Buy 1 call option at strike K3 (further OTM, K3 > K2), same expiry

Net debit or credit H

## Payoff Profile
f_T = (S_T - K3)+ + (S_T - K2)+ - (S_T - K1)+ - H

- Lower breakeven: S*_down = K1 - H  (if H < 0, net credit)
- Upper breakeven: S*_up = K3 + K2 - K1 + H
- Max profit: P_max = unlimited  (above S*_up)
- Max loss: L_max = K2 - K1 + H  (in zone [K1, K2])

## Key Conditions / Signals
- Bullish adjustment to a bear call spread that has moved against the trader
- Profits if the stock continues to rise significantly above K3
- Low volatility near K1 environment after adjustment is undesirable

## Notes
The bear call ladder converts a bearish income strategy into a bullish capital gain strategy. The additional long call at K3 limits the maximum loss zone and creates profit on a sharp rally.