Ladder Option

The elevator to your 11th floor apartment is broken. You asked the super how you're supposed to get to your place. He suggests what he calls "the ladder option." (You immediately start googling rental options in your neighborhood.)

Actually, this term has to do with the options market. A normal option grants its holder the right, but not the obligation, to buy or sell some underlying asset (like a stock or a commodity) at a set price during a pre-set time period. The pre-set price is known as the strike price. Traditional, vanilla options have a single strike price.

So you might hold an option to buy 100 barrels of oil at $75 a barrel, with the option expiring in May. The $75 represents the one and only stock price for that option.

In contrast, a ladder option has a series of strike prices. Like a ladder, it has numerous rungs, leading up or down (depending on whether you have a call or a put, betting either that the price of the underlying asset would go up or down).

If you buy a ladder option, you get some profit if the first strike price level is meant, and then additional profit with each additional level reached.