The risk reversal options trading strategy consists of buying an out of the money call option and selling an out of the money put option in the same expiration month. This is a very bullish trade that can be executed for a debit or a credit depending on where the strikes are in relation to the stock.
The investor who enters a risk reversal wants to benefit from being long the call options but pay for the call by selling the put. A trade setup like this eliminates the risk of the stock trading sideways, but does come with substantial risk if the stock trades down.
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