What is a bull call ladder?
A bull call ladder (also called a 1×2×1 call spread or call ratio ladder) buys 1 call at a lower strike and sells 2 calls at 2 progressively higher strikes. Example: buy $100 call, sell $105 call, sell $110 call. The position can be entered at a credit. It profits if the stock rises to the range of the short calls. If the stock rallies sharply above the highest short call, the unhedged short call creates undefined risk.
Bull call ladder vs bull call spread
A bull call spread buys 1 call and sells 1 call — fully defined risk and defined profit. A bull call ladder sells an additional call, increasing the credit but adding undefined upside risk. The ladder is more capital efficient in moderate bullish scenarios but dangerous in strongly bullish markets. Most retail traders should prefer the defined-risk bull call spread unless they have a specific view that the stock will not rally beyond the highest strike.
Risk management
The key risk is an unexpected sharp rally above the highest short call. Always set a hard stop or a close trigger if the stock approaches the highest strike. Converting the position to a bull call spread (buying back one of the short calls) caps the risk at any time. The ladder should be used only when you have high conviction the stock will not rally significantly beyond your upper strike.
When to use a bull call ladder
Use when the stock has a specific resistance level above which you believe the rally will stall. The ladder profits handsomely if the stock rises to and consolidates around the short strikes. It is also used by professionals in situations where the credit from the short calls funds the long call at zero cost or better — creating a "free trade" with upside risk that must be actively managed.