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Advanced Options · ADV-13a · Advanced

Bullish risk reversal

How does bullish risk reversal express a upside financed by a downside obligation view?

One concept per page · original written lesson · 569 prose words · authored, not installed or production-approved

What you will learn and prerequisites

Read first: Read a contract and its premium, Rights, obligations and expiration, Defined payoff risk is not margin, Read the whole multi-leg ticket

A bullish risk reversal buys a call and sells a put at a lower strike. Equal premiums can make the entry cash flow zero, but the sold put supplies the financing by accepting downside risk.

Construction: read every leg

Sell 95 put and buy 105 call at 2.00 each. Between strikes terminal gross P/L is zero. Above 105 the call gains; below 95 the put liability grows. The far-downside loss is 9,500 before costs. Different strikes distinguish it from exact synthetic stock.

Read the ticket before the graph

BUY means you own an option right; SELL means you accept a short-option obligation. Positive quantities are long and negative quantities are short in the calculation. Check quantity, call/put, strike, multiplier and expiry before netting premium.

All legs in this example share November 20, 2026 expiration. The entry observation is October 6, 2026, with fictional QLT at 100. These are independent illustrative premiums, not a current option chain or executable quotes. The terminal diagram assumes every leg and any shares are resolved at one common settlement price.

Before expiry: time and volatility

Both legs contribute bullish Delta. The structure also trades relative volatility across wings, so skew matters. An increase in downside IV can hurt the sold put even when the upside call is unchanged.

Manage the position deliberately

Ask whether the put obligation is acceptable on its own. If not, do not justify it as payment for the call. Compare a purchased call or protected spread. Reassess both legs after a thesis change.

Fictional teaching ticket · no order submission

Bullish risk reversal

QLT • reference spot $100 • independent illustrative prices • quote date 2026-10-06

Read action, quantity, type, strike, expiry, premium and multiplier before the payoff
ActionQtyTypeStrikeExpiryPremium/unitMultiplier
SELL1Put952026-11-202100
BUY1Call1052026-11-202100
Opening option cash (+received / −paid)0 USD
Entry option fees in cost variant1.3 USD
Shares included0
Joint-terminal results—not a guarantee of interim cash requirements
MeasureBefore costsAfter stated entry fees
Maximum terminal profitUnbounded in this terminal modelUnbounded in this terminal model
Maximum terminal loss magnitude9,5009,501.3
Breakeven settlement price(s)95, 105105.013

Before-fee zero-P/L interval(s): [[95.0, 105.0]]. An endpoint labeled null denotes an unbounded interval.

This is a mathematical expiry experiment using the displayed legs, not an executable quote. The slider range is not a risk limit.

$0.65 per option contract on entry only. No exit, assignment, financing or tax costs modeled.

Independent fictional premiums, not one simultaneous arbitrage-consistent chain. All legs realized simultaneously at intrinsic at the same expiry; terminal calculations do not model American early exercise, temporary unhedged positions, forced liquidation or live liquidity. Displayed chart domain is not a tail-risk cap.

From opening cash to a settlement result

Read the opening instructions: sell 1 95 put at 2.00; buy 1 105 call at 2.00. Option opening cash is $0.00 received as a credit. A received credit is not earned profit while the obligation remains open.

Set the common settlement price to 85.00. Calls have intrinsic value max(S−K,0); puts have max(K−S,0). Subtract the opening premium from each intrinsic value, then multiply by signed quantity and the 100-unit multiplier. Shares contribute their price change from their own cost. The calculation popup shows every leg.

The combined result is $-1,000.00 before costs and $-1,001.30 after illustrative opening fees of $1.30. Exit fees, slippage, funding, dividends and taxes are not included. Opening fees are 0.65 per option contract, not a statement of any broker's pricing.

Maximum terminal profit is unbounded in this model; maximum terminal loss magnitude is $9,500.00, before costs. Isolated zero-P/L settlement points in the model: 95, 105; zero-P/L intervals are shown in the ticket data, not single isolated breakevens. Move the scenario slider across each strike and explain why the slope changes there. A strike is a contract threshold, not a prediction.

This terminal model is useful for comparing risk shapes, but actual American-style assignment, share delivery, forced liquidation or a failed multi-leg exit can produce a different path. A long protective leg is not an automatic instruction that a broker must exercise it when another leg is assigned.

Open the calculation without leaving this lesson

Calculate this exact ticket

Same-page calculation. Closing restores the lesson position and originating control.

P/L = Σ[q × multiplier × (intrinsic − opening premium)] + shares × (S−share entry) − costs

Intrinsic is nonnegative before the signed quantity is applied. This is a fictional terminal calculation.

  1. -1 × 100 × (10.00 − 2.00) = $-800.00: 95 put.
  2. +1 × 100 × (0.00 − 2.00) = $-200.00: 105 call.
  3. Opening fees: 1.30.
Before costs $-1,000.00; after entry fees only $-1,001.30.

Maximum risk and breakevens

Same-page calculation. Closing restores the lesson position and originating control.

Evaluate S=0, all strikes and the final tail slope; solve P/L=0 on each linear segment.

Same-expiry payoffs are piecewise linear. A finite chart range cannot prove a tail is bounded.

  1. Maximum terminal profit is unbounded in this model; maximum terminal loss magnitude is $9,500.00, before costs.
  2. Breakeven points: 95, 105; zero-P/L intervals are shown in the ticket data, not single isolated breakevens.
  3. Costs shift net P/L downward without moving the strikes.
Maximum terminal profit is unbounded in this model; maximum terminal loss magnitude is $9,500.00, before costs.

The whole ticket at common expiry

Vertical: P/L per complete ticket (USD)
Horizontal: Underlying settlement price (USD)

The whole ticket at common expirySolid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range. The complete numerical data are available below.-1,771.42-1,063.11-354.803353.5031,061.811,770.12808896104112120
1. Combined terminal P/L before fees2. Combined terminal P/L after entry fees
Solid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range.
See the individual legs behind the combined curveThe whole ticket at common expirySolid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range. The complete numerical data are available below.-1,771.42-1,063.11-354.803353.5031,061.811,770.12808896104112120
1. Combined terminal P/L before fees2. Combined terminal P/L after entry fees3. Leg 1: SELL 1 95 put4. Leg 2: BUY 1 105 call
Read the graph as a data table
Complete graph data; original fictional observations or model calculations
Underlying settlement price (USD)Combined terminal P/L before feesCombined terminal P/L after entry feesLeg 1: SELL 1 95 putLeg 2: BUY 1 105 call
80-1,500-1,501.3-1,300-200
80.5-1,450-1,451.3-1,250-200
81-1,400-1,401.3-1,200-200
81.5-1,350-1,351.3-1,150-200
82-1,300-1,301.3-1,100-200
82.5-1,250-1,251.3-1,050-200
83-1,200-1,201.3-1,000-200
83.5-1,150-1,151.3-950-200
84-1,100-1,101.3-900-200
84.5-1,050-1,051.3-850-200
85-1,000-1,001.3-800-200
85.5-950-951.3-750-200
86-900-901.3-700-200
86.5-850-851.3-650-200
87-800-801.3-600-200
87.5-750-751.3-550-200
88-700-701.3-500-200
88.5-650-651.3-450-200
89-600-601.3-400-200
89.5-550-551.3-350-200
90-500-501.3-300-200
90.5-450-451.3-250-200
91-400-401.3-200-200
91.5-350-351.3-150-200
92-300-301.3-100-200
92.5-250-251.3-50-200
93-200-201.30-200
93.5-150-151.350-200
94-100-101.3100-200
94.5-50-51.3150-200
950-1.3200-200
95.50-1.3200-200
960-1.3200-200
96.50-1.3200-200
970-1.3200-200
97.50-1.3200-200
980-1.3200-200
98.50-1.3200-200
990-1.3200-200
99.50-1.3200-200
1000-1.3200-200
100.50-1.3200-200
1010-1.3200-200
101.50-1.3200-200
1020-1.3200-200
102.50-1.3200-200
1030-1.3200-200
103.50-1.3200-200
1040-1.3200-200
104.50-1.3200-200
1050-1.3200-200
105.55048.7200-150
10610098.7200-100
106.5150148.7200-50
107200198.72000
107.5250248.720050
108300298.7200100
108.5350348.7200150
109400398.7200200
109.5450448.7200250
110500498.7200300
110.5550548.7200350
111600598.7200400
111.5650648.7200450
112700698.7200500
112.5750748.7200550
113800798.7200600
113.5850848.7200650
114900898.7200700
114.5950948.7200750
1151,000998.7200800
115.51,0501,048.7200850
1161,1001,098.7200900
116.51,1501,148.7200950
1171,2001,198.72001,000
117.51,2501,248.72001,050
1181,3001,298.72001,100
118.51,3501,348.72001,150
1191,4001,398.72001,200
119.51,4501,448.72001,250
1201,5001,498.72001,300

The failure case

A supposedly free upside position becomes a large loss after a downside gap. No entry debit does not mean no capital at risk.

Check your understanding

Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.

What is whole-position terminal P/L at QLT 85.00, before costs?

Reveal the worked answer

$-1,000.00

Use all signed legs, not just the winning leg. The popup and graph use the same ticket.

Critical risk question

Does a terminal loss bound guarantee every early-assignment or liquidation outcome?

Reveal the worked answer

No.

It describes the specified common-settlement payoff. Product rules, stock delivery, capital and execution still matter.

Takeaway

Explain the intended upside financed by a downside obligation exposure, each leg's obligation and the adverse price region before using the strategy name.

Sources, assumptions and downloadable script

External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.

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