Risk Reversal

Type of Strategy

trading / investing


bullish / neutral

implied volatility



XYZ at $50.  Sell a 45-dte $45 Put for $1, Purchase a 45-dte $55 Call for $1.


max loss = $45     ($45-$1+$1)     

max profit = undefined  

Breakeven = $45   (put strike – credit recvd)


Sell a put or a put spread to finance a long call or call spread, generally with the same expiration.


Sell 1 OTM put or put spread to pay for a 1 ATM or OTM long call or debit call spread.

Soi perspective

Risk reversals are similar but opposite transactions to collar strategies.  Generally, the puts and calls of a risk reversal have the same expiration cycle.  However, there are many variations on the general risk reversal theme.  In a bullish risk reversal, a put or put spread may be sold against an underlying with the proceeds used to purchase a call or call spread in either the same or a later expiry.

When employing a risk reversal strategy, using put sale proceeds to purchase low-delta OTM call options is not recommended.  Additionally, selling puts or put spreads with expirations following the expiry of purchased call or call spreads is not recommended.  While a general collar strategy around an equity holding may be employed by a novice to options, risk reversals will benefit from increased knowledge and experience.

Note that a risk reversal consisting of a short put and a long call with equal strike prices and expirations results in a synthetic long stock position.


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