A bear put ladder buys 1 ITM put, sells 1 ATM put, sells 1 OTM put. Three legs, same expiration. Mirror of the bull call ladder. Defined profit zone with undefined risk on the deep downside.
Construction: the long ITM put sets the base; the short ATM and OTM puts collect significant premium. Profit zone is between the upper short strike and the long strike. Below the lower short strike, the position turns into a naked short put and absorbs losses if the stock continues falling. Use case: moderate bearish bias with confidence the stock won't crash through the lower short strike.
Best deployed in elevated IV environments where the two short legs collect enough premium to fund the long leg. Defensive management is essential — a sharp downside move past the lower short strike produces unbounded loss similar to a naked short put. Position sizing must account for the worst-case full-assignment scenario.
Frequently Asked Questions
Why use a bear put ladder instead of a bear put spread?
Higher initial credit (or lower debit) due to the second short put. Trade-off is undefined downside risk past the lower short strike.
How aggressive should the short strikes be?
Conservative — typically 0.30 delta on the ATM short and 0.15 delta on the OTM short. Aggressive strikes increase credit but tighten the danger zone.