We put our own little twist on the traditional risk reversal strategy.
A risk reversal is a classic options strategy where you simultaneously buy a call option and sell a put option on the same underlying asset. Traders use it to get directional exposure at zero cost as the premium from selling the put finances the purchase of the call.
The Traditional Risk Reversal Example
In a standard bullish risk reversal on Tesla (TSLA) trading at $400:
Buy a $410 call option for $3
Sell a $390 put option for $3
Net cost: $0 (premiums offset)
You get upside if Tesla rises above $410, but you’re obligated to buy shares at $390 if it falls. Both legs are on the same stock.