GoSeigen wrote:Option strategies have colourful names which takes some of the tedium out of learning about them.
One of my favourites is a "Risk Reversal". Probably has other names too.
It is a way of making a bullish bet at zero cost. If a share is (say) 30 then you sell a 28 Put and use the premium received to buy a 32 Call. Most times both will be about the same value so the net cost to you is zero.
If the share goes up, your Call will increase in value and you will get to keep the premium from the Put.
If the share does nothing you make nothing and lose nothing.
If the share falls below 28 then you buy the share at that lower price.
Obviously only worthwhile if you are happy to end up owning the share.
It is actually the mirror opposite of a Collar, where you sell an out-of-the-money Call to pay for buying protection via a long Put. Free protection as long as you are willing to have the share called away from you at a higher price.