# Bearish risk reversal

**ADV-13b · Advanced Options · Advanced**

**Lesson question:** How does bearish risk reversal express a downside financed by an upside obligation view?

Original fictional examples; educational writing, not live market data, orders or production approval.

## By the end

- Read and reconstruct the priced ticket.
- Reconcile leg P/L with the combined graph.
- Explain the time, volatility and operational failure cases.

**Prerequisites:** OPT-F01, OPT-F02, OPT-F03, OPT-F04

A bearish risk reversal buys a put and sells a higher call. It finances downside exposure with an uncovered upside risk. That is materially different from the limited loss of a long put.

## Construction: read every leg

Buy 95 put and sell 105 call at equal premiums. Below 95 the put earns, between strikes gross P/L is zero and above 105 the short call loses without a finite upper limit.

## 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 supply bearish Delta. Gamma and Vega depend on moneyness and skew. A squeeze can make the short call increasingly sensitive. Equal premium is not equal risk.

## Manage the position deliberately

Compare a bear-put spread when a finite loss cap is required. Prepare for call assignment and stock delivery. A stop cannot guarantee a price through an upward gap.

## Priced fictional ticket

Read every leg before interpreting the combined payoff.

| Action | Quantity | Type | Strike | Expiry | Premium per unit | Multiplier |

|---|---:|---|---:|---|---:|---:|

| SELL | 1 | call | 105 | 2026-11-20 | 2 | 100 |

| BUY | 1 | put | 95 | 2026-11-20 | 2 | 100 |

Opening option cash: 0 USD (positive received, negative paid). Entry option fees: 1.3 USD.

$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.

**Before fees:** maximum terminal profit 9,500; maximum terminal loss magnitude Unbounded in this terminal model; breakeven price(s) 95, 105.

**After entry fees:** maximum terminal profit 9,498.7; maximum terminal loss magnitude Unbounded in this terminal model; breakeven price(s) 94.987.

Zero-P/L intervals before fees: [[95.0, 105.0]]

## From opening cash to a settlement result

Read the opening instructions: sell 1 105 call at 2.00; buy 1 95 put 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 120.00. 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 $-1,500.00 before costs and $-1,501.30 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 $9,500.00; maximum terminal loss magnitude is unbounded in this model, 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.

## Calculation popup: Calculate this exact ticket

```text
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 × (15.00 − 2.00) = $-1,300.00: 105 call.

2. +1 × 100 × (0.00 − 2.00) = $-200.00: 95 put.

3. Opening fees: 1.30.

**Result:** Before costs $-1,500.00; after entry fees only $-1,501.30.

## Calculation popup: Maximum risk and breakevens

```text
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 $9,500.00; maximum terminal loss magnitude is unbounded in this model, 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.

**Result:** Maximum terminal profit is $9,500.00; maximum terminal loss magnitude is unbounded in this model, before costs.

## Graph: The whole ticket at common expiry

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

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.

Complete numerical data are embedded in `scripts/advanced-options/ADV-13b.js` and displayed as an accessible table in the HTML lesson.

## The failure case

The stock rallies sharply. The put cannot offset the call's upside liability because their favorable regions lie on opposite sides.

## Check your understanding

### What is whole-position terminal P/L at QLT 120.00, before costs?

**Answer:** $-1,500.00

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

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

**Answer:** No.

**Why:** It describes the specified common-settlement payoff. Product rules, stock delivery, capital and execution still matter. **Critical risk check.**

## Takeaway

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

## References and provenance

The cited references support definitions and conventions. The teaching prose, tickets and numerical scenarios are original; they are not attributed as historical market observations.

- [OIC Strategy Reference](https://www.optionseducation.org/strategies/all-strategies-en)

- [OCC Options Disclosure Document](https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document)