TO GET FREE INDEX & STOCK OPTION INTRA-DAY OR POSITIONAL CALLS FILL UP THE FORM GIVEN HERE>>>>>
A risk reversal is a strategy that involves selling a put and
buying a call with the same expiry month. This is also known as a bullish risk
reversal. A bearish risk reversal would involve selling a call and buying a
put. Today we’re going to examine the bullish risk reversal.
Stocks may be extended short-term
and due for a pullback, but if a trader wanted to take a bullish position a
risk reversal provides can be a good option.
BE PREPARED TO TAKE OWNERSHIP
The key with a bullish risk
reversal is that you need to be prepared to buy the underling at the strike of
the short put. If the underlying is below the strike price at expiry, the stock
will be put to you.
The beauty of the risk reversal is that it takes advantage
of the inherent skew in options. Generally, implied volatility is higher for
puts than calls.
The beauty of the trade is that
you can own upside exposure and get paid if the stock goes nowhere. If the
stock falls, you end up taking ownership for a price less than when the risk
reversal was initiated.
