Options Strategy Guide
Risk Reversal
Bullish bet funded by selling downside protection.
Advanced
Bullish
Unlimited upside, significant downside risk from short put
The Simple Version
Plain English — no jargon
You think a stock is going up and you want cheap exposure. So you buy a call (betting it goes up) and sell a put (agreeing to buy it if it falls). The put you sell pays for most or all of the call. You get the upside for free — but you're on the hook if the stock crashes.
How It Works — Step by Step
- 1 Buy an OTM call at a strike above current price
- 2 Sell an OTM put at a strike below current price
- 3 Put premium received funds most or all of the call cost
- 4 Profit if stock rises above the call strike
- 5 Lose if stock falls below the put strike — you're obligated to buy at that price
Real Example
JPM
Illustrative example — not a recommendation
Stock Price
$220.0
Strike Price
$230.0
Premium Collected
$0.5/share
Days to Expiration
30d
Max Profit
$999999
Breakeven
$230.5
Annualized Return
0%
When to Use It — and When Not To
✓ Use when
- You are bullish and want cheap or free upside exposure
- You are comfortable owning the stock if put to you at the short strike
- IV skew is high — puts are expensive relative to calls
✗ Avoid when
- You don't want to own the stock if assigned on the short put
- The stock could gap down significantly
- You are neutral or bearish
Greeks & Mechanics (for the experienced trader)
Delta
Positive — net bullish exposure.
Theta
Near neutral — long call and short put partially offset.
Vega
Slightly positive — call vega usually slightly exceeds put vega.
Gamma
Positive on the long call leg.
Key Risks
- Short put can cause large losses if stock drops sharply
- Assignment on the short put obligates you to buy shares at strike
- Often requires margin — not suitable for cash accounts
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