Reversal option strategy
Reversal, or Reverse Conversion, sells the future and hedges it with a synthetic long: a bought Call and a sold Put at the same strike. It locks in a fixed amount if the put is priced rich relative to the call and the future.
Payoff at expiry
Nifty, lot size 65 · Nifty future 22,650 · 27 Oct 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| SELL | Future | – | 1 | 65 | 22,650 |
| SELL | ATM Put | 22,650 | 1 | 65 | ₹290.71 |
| BUY | ATM Call | 22,650 | 1 | 65 | ₹290.51 |
How it works
- Sell 1 lot of the future at 22,650.
- Sell 1 ATM put at the 22,650 strike for ₹290.71, collecting the premium.
- Buy 1 ATM call at the 22,650 strike for ₹290.51, paying the premium.
- Whatever Nifty does, the legs offset: the result at expiry is −₹0, fixed when you enter.
At any level the result is the same, about ₹0 at these prices: the legs cancel out, so all you lock in is the small gap between the prices you trade at.
Set-up: Sell 1 lot Future, Sell 1 lot ATM Put and Buy 1 lot ATM Call at the same strike.
How the Greeks affect it
When to use
When the put premium less the call premium is more than the strike less the futures price, after brokerage and taxes.
- Payoff does not depend on the market direction.
- Shows put-call parity at work.
- Common trade for arbitrage desks.
Things to watch
- The edge is usually tiny and can vanish after costs.
- Three legs must be filled at the right prices together.
- Margin is locked till expiry.
Reversal: questions
What is a Reversal strategy?
Reversal, or Reverse Conversion, sells the future and hedges it with a synthetic long: a bought Call and a sold Put at the same strike. It locks in a fixed amount if the put is priced rich relative to the call and the future.
When should you use a Reversal?
When the put premium less the call premium is more than the strike less the futures price, after brokerage and taxes.
How do you set up a Reversal?
Sell 1 lot Future, Sell 1 lot ATM Put and Buy 1 lot ATM Call at the same strike.
What is the maximum profit of a Reversal?
Fixed: the futures price less the strike plus the put premium less the call premium, regardless of where the underlying closes.
What is the maximum loss of a Reversal?
Fixed and known upfront. The position loses only if it was entered above fair value or costs eat the edge.