Risk Reversal Question

L

LaxFan

Options Action profiled MSFT with May expiration. I haven't done the trade--just trying to make sure I understand it correctly.

Write a 235 put, buy a 265 call; collect a quarter in premium. If one put this trade on, is the worst case scenario that the stock is put to you at 235?

At expiration, if MSFT is below 235, stock is put to you at 235; 235-265 keep premium; 265+ exercise your call and buy stock at 265.

Is an options risk reversal a good way to give yourself a chance to participate in the upside move while getting into a stock at a lower price if it's put to you?

Do I have that correct?
 
when price drops near 235, you loss is more than "the stock is put to you at 235". especially if the drop is heavy, the vol would jump up and so would the put premium.
 
LaxFan said:
Options Action profiled MSFT with May expiration. I haven't done the trade--just trying to make sure I understand it correctly.

Write a 235 put, buy a 265 call; collect a quarter in premium. If one put this trade on, is the worst case scenario that the stock is put to you at 235?

At expiration, if MSFT is below 235, stock is put to you at 235; 235-265 keep premium; 265+ exercise your call and buy stock at 265.

Is an options risk reversal a good way to give yourself a chance to participate in the upside move while getting into a stock at a lower price if it's put to you?

Do I have that correct?
More...
Taking the "Last Trade" values as of last Friday from ttps://finance.yahoo.com/quote/MSFT/options?p=MSFT&date=1684454400
The setup and the accountType agnostic results --> https://optioncreator.com/stlgev6
The Break/Even point is at about 285+.
Your max loss can be 255.22, ie. a loss of about 1262% of the initial investment of $20.22.
Why not instead take just a LongCall alone or a ShortPut as these have a similar PnL "curve"?...

And how do you get to saying "collect a quarter in premium"? In reality in above setup it's $-20.22, ie. a debit, not credit.

Btw, when you post such a request, then provide all the necessary data, instead of forcing the readers to do it :-( Otherwise of course don't yell if you don't get any answers to your such moronic postings without the complete relevant data set...
 
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earth_imperator said:
Taking the "Last Trade" values as of last Friday from ttps://finance.yahoo.com/quote/MSFT/options?p=MSFT&date=1684454400
The setup and the accountType agnostic results --> https://optioncreator.com/stlgev6
The Break/Even point is at about 285+.
Why not instead take just a LongCall alone or a ShortPut as these have a similar PnL "curve"..

And how do you get to saying "collect a quarter in premium"? In reality in above setup it's $-20.22, ie. a debit, not credit.

Btw, when you post such a request, then provide all the necessary data, instead of forcing the readers to do it :-( Otherwise of course don't yell if you don't get any answers to your such moronic postings without the complete relevant data set...
More...

The quarter in premium was from the CNBC trade they described where a credit was received at the time (a week ago). I didn’t yell about not getting a response…I was just curious about understanding the general setup.

No need to insult someone that’s trying to learn something, but I guess the fact that you immediately go to a pejorative insult says more about you than it does about me.
 
LaxFan said:
The quarter in premium was from the CNBC trade they described where a credit was received at the time (a week ago). I didn’t yell about not getting a response…I was just curious about understanding the general setup.

No need to insult someone that’s trying to learn something, but I guess the fact that you immediately go to a pejorative insult says more about you than it does about me.
More...
I'm willing to help, but it just pisses me to do your elementary homework of at least giving the complete relevant data set. I had to guess to figure out what you might have been meaning...
And: what has the title you gave ("Risk Reversal Question") to do with your question? I couldn't find any relevance.
 
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Earth imperitor is a moron. He priced the trade like a week after you did. The stock rallied 20 dollars.

the risk is that while the stock sells off before expiry you will have greater mtm risk than just your premium. Overtime you will earn this back in the form of theta.

risk reversals are a tool. They can be useful to express a delta view with a skew kicker if the situation warrants but generally I would rather just be long the stock.
 
@newwurldmn, I admit I hadn't checked the date of the initial posting :-(
Ie. I assumed it's from this weekend, whereas it's a much older one.

Please explain what part of this trade makes up a "risk reversal".

Update: never mind, found these texts:
https://www.investopedia.com/terms/r/riskreversal.asp
https://www.investopedia.com/articl...isk-reversals-stocks-using-calls-and-puts.asp
So, it means to protect an underlying holding (ie. a stock etc) using such a risk reversal consisting of a put and call, to force the end result to stay within the chosen range (ie. within the strike boundaries).
But then, again guessing, that it seems the OP rather means such a construct with a short stock as the main holding: https://optioncreator.com/stvkkhx
 
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@earth_imperator is the dumbest mofo alive... and he's competing with soy and LF.

You can't just base the strikes equidistant from cash, you need to price the synthetic (MSFT forward) to the term you're trading. MSFT is trading 273 out to May so price your strikes accordingly. skewcorr is index-dependent.
 

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