When Should You Use This Strategy?
Bullish but want upside financed; put vol > call vol
Who Benefits Most?
Bullish traders with conviction
Position Setup
The Bullish Risk Reversal consists of the following legs:
- Sell 1 95 strike put at $3 premium
- Buy 1 105 strike call at $3 premium
Payoff at Expiration
The chart below shows profit and loss across a range of underlying prices for the default bullish risk reversal setup. Open the interactive calculator to change strikes, premiums, and quantities and see the shape update live.
How Profit and Loss Work
Maximum Profit: Unlimited
Maximum Loss: $9,500 per default position
Break-even Points: $95–$105
Timing & Time Horizon
30–90 days
Most traders enter this strategy 30–60 days before their expected move, allowing enough time for the position to develop while avoiding excessive time decay on shorter-dated options.
Capital Requirements
Often generates credit
How to Manage the Position
Close at 50% max profit
- Monitor the position daily, especially as it approaches profitability
- Set clear profit targets and exit rules before entering
- Consider closing early to lock in gains rather than waiting for max profit
- Be prepared to cut losses if the thesis is wrong
Key Risks & What to Watch
- Assignment on short put forces stock purchase
- Loss significant if stock crashes
Common Variations
The default setup above is one version of the bullish risk reversal. Traders adjust strike placement to trade off cost, probability, and payout:
Wide risk reversal
Place the put and call strikes further apart to widen the flat, no-payoff zone near the current price.
Key difference: Larger dead zone with no gain or loss, but often closer to a true zero-cost trade.
Best for: Traders who want cheap upside exposure and don't mind a wider flat range.
Narrow risk reversal near the money
Place both strikes close to the current stock price.
Key difference: Behaves almost like a synthetic long stock position with minimal flat zone.
Best for: Traders who want near 1:1 stock-like exposure financed by selling the put.
Frequently Asked Questions
Why is this called a 'risk reversal'?
Setup
It flips a hedging structure like a collar on its head: instead of selling a call to buy a protective put, you sell a put to finance a long call, reversing the risk profile to be bullish rather than protective.
What's the flat zone between the strikes?
Greeks & Risk
Between the short put strike and the long call strike, the position neither gains nor loses from moves in that range — both options stay out-of-the-money and expire worthless.
How is this different from a bull call spread?
Comparisons
A bull call spread has defined, limited risk on both sides. A risk reversal's short put carries the same open-ended downside as a naked short put, well beyond what a bull call spread risks.
Can a risk reversal be entered for a credit?
Setup
Yes, if the short put's premium exceeds the long call's cost, often due to put skew (elevated implied volatility on downside strikes), which is common in equity index and many single-stock options.
Model Before You Trade
Every strategy performs differently based on entry price, strike selection, and premium levels. Use the interactive Bullish Risk Reversal calculator to model the payoff with your expected entry, strikes, and premiums before committing capital.
Educational information only. This guide explains how the strategy works mathematically and typically behaves. It is not investment advice, and past performance does not guarantee future results. Options trading involves significant risk, including the potential loss of premium paid. Paper trade or use small positions while learning.