A risk reversal is an options strategy that combines buying a call option with selling a put option on the same asset, typically used when a trader has a bullish view and wants to position for upward price movement while offsetting some of the cost of that bullish bet.
Key Takeaways
- The strategy combines two positions: buying a call (profiting if price rises above the strike) and selling a put (collecting premium, but taking on obligation if price falls below the strike).
- Selling the put helps offset the cost (premium) of buying the call, making the overall position cheaper — sometimes even free — to establish.
- The strategy profits if the underlying asset’s price rises, similar to simply holding the asset, but with a different risk/cost profile.
- The downside risk is meaningful: if the price falls significantly, the sold put obligates the trader to buy the asset at the strike price.
- Risk reversals are generally considered an intermediate-to-advanced options strategy.
Our Take
The ‘risk reversal’ name captures the strategy’s core trade-off precisely: it reverses the typical risk profile of simply buying a call option into something closer to owning the underlying asset directly, funded by taking on additional downside risk.
This is a genuinely useful illustration of a broader principle in options strategies: reducing the upfront cost of a position virtually always means taking on risk somewhere else in exchange, rather than getting the reduced cost for free.
FAQs
Why would a trader sell a put as part of a bullish strategy?
Selling the put generates premium income that helps offset the cost of buying the call, at the cost of taking on downside obligation if the price falls.
Is a risk reversal a beginner-friendly options strategy?
Generally not recommended for beginners — it requires understanding both option legs’ obligations and risk profiles clearly.
📎 Source: Coinbase Learn — How does a risk reversal options strategy work in crypto?
