An options strategy consisting of writing an additional lower strike price put option on a bear put spread in order to further reduce capital outlay.
The Long Put Ladder Spread, also known as the Bear Put Ladder Spread, is an improvement made to the Bear Put Spread. It further eliminates capital outlay by writing an additional further out of the money put option of the same expiration month. Such an improvement not only reduces capital outlay but sometimes eliminates capital outlay altogether, transforming the Bear Put Spread into a credit spread. The drawback of such an improvement is that the Long Put Ladder Spread is exposed to unlimited upside loss if the underlying stock moves downwards explosively. Yes, there are always pros and cons to every options trading strategy.
This tutorial shall explain what the Long Put Ladder Spread is, its calculations, pros and cons as well as how to profit from it.
Find Options Strategies With Similar Risk Profiles 
Type of Strategy : Bearish

Type of Spread : Vertical Spread

Debit or Credit : Debit
The Long Put Ladder Spread is part of the "Ladder Spreads" family. Ladder Spreads add an additional further out of the money option on top of two legged spreads, stepping the position down by another strike price. The use of progressively higher or lower strike prices in a single spread gave "Ladder Spreads" its name.
The Long Put Ladder Spread is extremely similiar to the Bear Ratio Spread as both the Bear Ratio Spread and Long Put Ladder Spread aim to reduce or eliminate upfront capital outlay for a Bear Put Spread position. In doing so, both the Bear Ratio Spread and Long Put Ladder Spread require margin for the uncovered options. However, the Bear Ratio Spread does so by writing more out of the money put options at the same strike price while the Long Put Ladder Spread does so by writing put options at a lower strike price than the existing short put leg. The result of this difference is that the Long Put Ladder Spread require a lower margin than the Bear Ratio Spread due to the lower strike price of the additional short put options, while the Bear Ratio Spread would have a higher maximum profit, closer breakeven point and a lower capital outlay due to the higher extrinsic value offered by the higher strike price of the additional short put options.
The Long Put Ladder Spread should be used as an improvement to a Bear Put Spread position when it is clear that the price of the underlying stock would not move explosively.
Long Put Ladder is made up of buying an At The Money (or slightly ITM or OTM) Put Option, writing an equivalent amount of a lower strike price Out Of The Money put Option and then writing yet another equivalent amount of an even lower strike price out of the money put option.
Buy ATM Put + Sell OTM Put + Sell Lower Strike OTM Put
Long Put Ladder Spread Example
Assuming QQQ trading at $44. 
The consideration behind the middle strike price for Long Put Ladder spreads is the same as the Bear Put Spread. You write the middle strike price put options at the price you expect the underlying stock to move down to but not exceed by expiration. In our example above, we expect QQQ to move down to but not exceed $42. If we expect QQQ to move down to $41 by expiration, we will write the middle strike price at $41 and then move the further OTM strike price lower as well.
The lower strike price OTM put is usually written one strike price lower than the middle strike price. In our example, since we wrote the middle strike price at $42, we have chosen to write the lower strike price OTM put one strike lower at $41. However, the lower the strike price of this lowest strike price leg, the lower the margin requirement. As such, one could also choose to write this lowest strike price leg at as low a strike price as it takes to reduce the capital outlay of the position to a level of one's satisfaction.
A Level 5 options trading account that allows naked write is needed for the Long Put Ladder Spread due to the uncovered lowest strike price leg. Read more about Options Account Trading Levels.
Long Put Ladder Spread profits primarily when the price of the underlying stock decreases to and remains between the strike prices of the two short puts. The Long Put Ladder Spread would start losing money when the price of the underlying stock decrease beyond the strike price of the lowest strike price put options. As such, it would be advisable to place a stop loss at the lowest strike price put options using a contingent order in order to close out the whole position when the underlying stock reaches that strike price or to make an adjustment to the position to transform it into a more bearish options trading strategy when it is clear that the stock is going to drop drastically (see alternate actions before expiration below).
Maximum Profit = Strike Price of Long Put  Middle Strike Price  Net Debit Paid
Long Put Ladder Spread Calculations
Following up on the above example, assuming QQQQ at $46.50 at expiration. Wrote the JAN 42 Put for $0.50 Wrote the JAN 41 Put for $0.15 Net Debit = $1.50  $0.50  $0.15 = $0.85 Reward Risk Ratio = 1.15 / 0.85 = 1.35 Max. Upside Risk = $0.85 Max. Downside Risk = Unlimited Upper Break Even = $44  $0.85 = $43.15 Lower Break Even = $41  $1.15 = $39.85 
Maximum Profit: Limited
Maximum Upside Loss: Limited to net debit paid
Maximum Downside Loss: Unlimited beyond lowest strike price
There are 2 break even points to a Long Put Ladder Spread. One breakeven point if the underlying asset goes up (Upper Breakeven) beyond which the position goes into an unlimited loss, and one breakeven
point if the underlying asset goes down (Lower Breakeven).
Upper BEP: Long Put Strike  Net Debit
Lower BEP: Lowest Strike  Max. Profit
Delta : Negative
Delta of Long Put Ladder Spread is negative at the start. As such, its value will increase as the price of the underlying stock decreases.
Gamma : Negative
Gamma of Long Put Ladder Spread is negative and will increase delta as the price of the underlying stock decreases. It will then come to a point where the delta will become positive and the position will start to decline in value as the price of the underlying stock continues to decrease.
Theta : Positive
Theta of Long Put Ladder Spread is positive and will therefore gain value over time due to time decay in the short term prior to expiration as the short out of the money put options lose value faster than the Long Put options.
Vega : Negative
Vega of Long Put Ladder Spread is negative and will therefore lose value as implied volatility rises and gains value as implied volatility drops. As such, it is highly disadvantageous to use a Long Put Ladder Spread in periods of rising implied volatility prior to expiration.
:: Further reduces capital outlay of a Bear Put Spread
:: Wider maximum profit zone than a Bear Ratio Spread
:: Lowers breakeven point of a Bear Put Spread
:: Margin required due to uncovered OTM leg
1. If the underlying asset has declined beyond its breakeven point and is expected to continue to move strongly in the same direction, one could Buy To Close the short put options and hold the Long Put options for unlimited downside profit.
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