Stratagem Trade – Advanced Risk Reversal 2024

The Risk Reversal is a powerful strategy for directional trading — often more forgiving than simply buying a long option or using a vertical spread. By combining a long call spread with a short put spread (or vice versa), traders can reduce exposure to volatility, skew, and time decay — common risks in standard directional trades. One of the major advantages of this approach is that it allows for a much wider margin of error: the market can move against your position significantly before you incur a loss — something you won’t get with a traditional call or put spread.

Success with this strategy relies on careful selection of strike prices, spread width, expiration dates, and smart hedging or adjustment techniques. That’s why it’s a go-to strategy for many institutional traders and professionals — both as a speculative play and as a hedge.

In our POT classes, we’ll be using this strategy frequently — especially in today’s low-volatility environment, which has been frustrating for many traders. Why? Because the Risk Reversal can be adapted to almost any market condition and works particularly well when markets are overbought or oversold.