Risk Reversal Calculator
A risk reversal sells an out-of-the-money put to pay for a long out-of-the-money call. It is a leveraged bullish position — often near zero cost — that behaves like owning the stock, but with a flat "dead zone" between the two strikes and real downside risk below the short put.
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Key characteristics
- Sell an OTM put, buy an OTM call: a synthetic long-stock lean, frequently for little or no net cost.
- Upside is unlimited above the call strike; the short put funds the trade.
- Downside mirrors owning stock below the put strike — you can be assigned 100 shares there.
- Between the two strikes the P/L is roughly flat (the net credit or debit you opened for).
When to use a risk reversal
Use it when you are firmly bullish and want stock-like upside with little or no upfront cost, and you are genuinely willing to own the shares at the put strike if you are wrong. The premium from the short put pays for the long call, so the position is cheap to put on.
Strike selection sets the character: a wider gap lowers the cost (or creates a credit) but widens the flat dead zone where nothing happens; tighter strikes behave more like a straight long stock position.
Risks and management
The danger is the short put. A sharp drop forces you to buy 100 shares at the put strike, with losses building all the way down — this is not a defined-risk trade. Size it as if you were buying the stock outright.
Many traders close or roll the short put if the stock weakens, and take profits on the long call into a rally. Watch dividends and skew: puts are often richer than calls, which is exactly what makes the structure cheap.
Calculate it live
Use the free OptionProfit Risk 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.
- Leveraged bullish exposure for little or no cost — the short put pays for the long call.
- Unlimited upside, a flat zone between strikes, and stock-like risk below the put.
- Not defined risk: treat the short put as a commitment to buy 100 shares.
- Put skew makes it cheap; only use it when you truly want to own the stock lower.
Frequently asked questions
Is a risk reversal the same as a synthetic long stock?
It is the same idea but with different strikes. A synthetic long uses the same strike for the call and put; a risk reversal spreads them apart (OTM call, OTM put), creating a flat zone in the middle and usually a lower cost.
How much can I lose?
A lot — the downside behaves like owning 100 shares from the put strike down to zero, minus any credit received. It is not a limited-risk position.
Why does it often cost almost nothing?
Because put implied volatility is usually higher than call IV (volatility skew), the OTM put you sell tends to bring in roughly what the OTM call you buy costs.
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