Synthetic Long with Unlimited Upside
The bullish risk reversal combines a short put with a long call, creating a synthetic long position. The put premium helps fund the call purchase. When balanced properly, you get bullish exposure with limited or no capital at risk - and unlimited upside potential.
Based on example: Sell AAPL $145 put for $3, Buy AAPL $155 call for $2.50
A -0.30 delta put provides meaningful premium to fund the call while maintaining a 70% probability of not being assigned.
A 0.30 delta call gives you leveraged upside exposure. When funded by the put premium, this creates an efficient bullish position.
Ideally the put premium covers 50-200% of the call cost. A net credit means you get paid to take bullish exposure; a small debit is acceptable.
Bullish risk reversals require high conviction—you're taking on significant downside risk (put assignment) in exchange for unlimited upside. Choose stocks with strong fundamentals where you'd be happy to own shares if assigned. This strategy works best in high IV environments where put premiums are elevated enough to fund your call purchase. Look for stocks with clear catalysts that could drive upside.
These techniques can help you get the most out of this powerful strategy. As always, your mileage may vary based on your goals and market conditions.
When put premium equals or exceeds call cost, you get bullish exposure for zero or net credit. This happens in high IV environments or when put skew is steep. These are the ideal setups—you're literally getting paid to be bullish.
Puts often trade at higher IV than calls (volatility skew). This means you're selling "expensive" puts and buying "cheaper" calls. Check the IV of both legs—a 5%+ IV difference in your favor is a good sign.
Unlike CSPs where assignment is a fallback, risk reversals work best when you'd actually want the shares. If assigned on the put, you now own shares at a discount AND you hold a call for upside. That's a strong position.
Risk reversals can be powerful pre-earnings plays. IV pumps up both premiums, but you're net short vol on the put side. If you're bullish on earnings, this gives you leveraged upside with the put premium cushioning any disappointment.
If the stock drops toward your put strike, you can roll the put down and out for credit—buying more time and lowering your effective assignment price. Meanwhile, your long call can be held or rolled too.
Each risk reversal obligates you to potentially buy 100 shares at the put strike. Size accordingly—never commit more than 10-15% of your portfolio to a single risk reversal. Concentration kills in market drawdowns.