Reversal Calculator
A reversal, or reverse conversion, shorts 100 shares and wraps them in a synthetic long — long a call and short a put at the same strike. Like the conversion it mirrors, the combined value is fixed regardless of price: a defined, near-riskless arbitrage built on put-call parity.
Interactive calculator
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Key characteristics
- Short stock + long call + short put at the same strike: a locked, flat payoff.
- The mirror image of a conversion — it profits from the opposite mispricing.
- Used to borrow stock synthetically or capture rich puts relative to calls.
- A market-maker / arbitrage structure, with only a tiny theoretical edge.
How a reversal works
The long call and short put at the same strike form a synthetic long stock. Pair that with your 100 short shares and the directional risk cancels, leaving a position fixed at the strike value at expiration — a flat payoff line.
A reversal pays when the put is rich relative to the call (after interest and dividends), the opposite condition to a conversion. It is also a way for market-makers to create a synthetic loan or to hold short stock with defined economics.
Risks and reality
The frictions mirror the conversion: three legs of commissions and spreads, borrowing costs and buy-in risk on the short shares, dividend obligations while short, and early assignment on the American-style short put, which breaks the lock.
Like conversions, reversals are mainly a professional inventory and financing tool and a textbook illustration of synthetics. After real-world costs there is rarely a net edge for retail traders.
Calculate it live
Use the free OptionProfit Reversal calculator to load a live option chain, build the trade, and instantly see the payoff chart, breakevens, probability of profit, Greeks and a Monte Carlo simulation of outcomes.
- Short stock + long call + short put (same strike) = a locked, flat payoff.
- The exact mirror of a conversion; profits from rich puts vs calls.
- Near-riskless in theory; borrow costs, dividends and assignment erode it.
- A financing and market-maker tool, and a clean lesson in synthetics.
Frequently asked questions
When is a reversal profitable?
When the put is expensive relative to the call after accounting for interest and dividends — the opposite mispricing to the one a conversion exploits.
Why short the stock at all?
The short shares are offset by the synthetic long from the options, so the directional risk cancels. The structure is about locking economics and financing, not betting on a fall.
Is it suitable for retail traders?
Rarely. Borrowing the shares, dividend obligations, three sets of trading costs and early-assignment risk usually erase the small theoretical edge. It is mostly educational and professional.
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