r/thetagang
Risk Reversal w/ a Twist
Author shares a modified Risk Reversal options strategy using LEAPS and ratio spreads to generate income on IBIT and AI stocks.
- The strategy uses long puts or ratio spreads to define and cap downside risk while maintaining upside exposure.
- Selling LEAPS allows the investment thesis more time to materialize compared to short-term options.
- Targeting high-growth AI names and Bitcoin proxies like IBIT aligns with current strong market momentum.
- Complex multi-leg options strategies carry execution risk and may suffer from wide bid-ask spreads.
- If the underlying assets (AI/Bitcoin) experience a sharp correction, the defined risk limits may still result in significant losses.
- Writing calls against long positions caps potential profits during parabolic rallies.
Morning Gang. I'd like to share a somewhat safer technique of bringing in some income. I've been toying with Risk Reversals but defining my risk via a wide long puts, or a 2:1 ratio, depending on the stock price.
For those that may not know, a Risk Reversal is a strategy that involves selling a put, possibly on oversold names, or names you expect to rally, and using the premium to fund long calls. In some cases this can be done for a credit, depending on your strikes.
I've gone a step further and sold LEAPS to allow my thesis to play out, and ultimately plan to write calls against my Long Call once the strike is crossed and the Stock is running out of steam. So far I've deployed this on Quantum stocks as well as IBIT, with great success on the former. My current plans are to run these on a few AI names that are exhibiting substantial growth.
Worth being precise about what this is, because calling it income understates the directional risk. A short put funding long calls is a leveraged long, both legs are positive delta, so in a real drawdown you lose on the short put and the long calls at the same time, which is the opposite of safer. The other thing nobody flagged is vega. Your short put wants IV to fall and your long LEAPS wants IV to rise, so if volatility comes in after you put it on, the calls can bleed even when price goes your way. That is the quiet drag on financing longs with short premium. The structure is fine if you size it as the leveraged bullish bet it is and you actually want the shares at the put strike, but the credit framing hides that you are net long premium funded leverage, not collecting safe income.
Good post
This is not an income play
There's a covered call component. It's a PMCC with the long leg funded by a wide wing put spread.
Yup did that with rklb about a year ago. Worked great but its way to stressful for me 😂
Synthetic long with a collar.
Nothing new here.
It's not a collar if there's nothing to protect the long.
Its the same position as long stock, long put and short call at same strikes - so a synthetic collar, look at the pnl graph of both positions
Assuming OTM puts, if and when you get assigned, you’re down on the stock AND on the calls.
This is why it would preferably be deployed in down markets
So, synthetic longs that you'll sometimes convert to a diagonal/PMCC?
Correct. This is what it boils down to. Take advantage of the gains in LEAPS while funding them via short put spreads.
So you want to do a synthetic long and then sell pmcc on it.
And you want to do it on high IV quantum stocks.
Cool. You might want to use optionstrat to test your idea before throwing money into it.
Interesting structure
My only pushback is I’m not sure I’d call it “safer income” — feels more like a leveraged directional thesis with financing
Especially on quantum / high beta AI names, you’re still implicitly short downside through the put while long convexity on the upside
Selling LEAPS definitely gives the thesis time to play out, but I’d be curious how you think about regime changes. Stuff that trends beautifully can also reprice violently if sentiment or multiples crack
Do you mostly pick names where you’d genuinely be okay owning shares if the short put gets tested?
A risk reversal is selling a call to buy a put. Selling a put to buy a call would be a risk not-reversal
What you described is a short risk reversal