High upside potential, low downside risk strategy

Discussion in 'Options' started by Qulek, Jun 30, 2022.

  1. LM3886

    LM3886

    A risk reversal does not protect from a significant drop, though.
     
    #21     Jul 3, 2022
  2. taowave

    taowave

    Fully agree,but the OP" knows" the stock us going to double in the next 3 -6 months..Which is,why I said if you don't mind owning the pig on the way down..

    Otherwise I would buy the shorter duration call and roll..





     
    #22     Jul 3, 2022
    Global OptionsTrades and LM3886 like this.
  3. LM3886

    LM3886

    Makes sense. I think OP probably wants to add some leverage but in the meantime avoid exploding margin requirement on the way down. The margin requirement for risk reversals can go up significantly if the stock drops big. On the other hand, calls or back spreads don't have this concern but suffer from time decay.
     
    #23     Jul 3, 2022
  4. Close... You sell a call.
     
    #24     Jul 3, 2022
  5. taowave

    taowave

    I just ran some scans in Orats and it certainly looks like Call 1x 2 call backspreads are right up there with Risk Reversals...Im not accounting for skew or overall level of vol...I also didnt look at ratios greater than 1x2,which woukd obviously work given his assumptions..Nice call,no pun intended :)




     
    #25     Jul 3, 2022