Risk Reversal

Risk Reversal Binary Options Trading Strategy

A risk reversal strategy is similar to a hedging strategy. This trading tactic requires the simultaneous purchase of a Call and Put on a single asset.

The benefit of using this strategy is that you can earn significant profits with minimal risk, but the downside is that it's a complex approach and takes practice to find the best entries.

The risk reversal binary options strategy is best used by advanced traders who have an understanding of hedging.

How Does It Work?

Before implementing this strategy, you need to make sure you're using a broker who allows you to set pending limit orders such as Roiteks. This isn't absolutely required, but it is recommended. Binary exchanges allow this, as do some brokers who run on the SpotOption 2.0 platform.

No matter what asset you decide to trade, price needs to have momentum. You will also need to identify both a primary and secondary trade. As an example, we will be looking to place a Call on AUD/USD. We're placing a Call because it's in the direction of the underlying trend, so the Call is our primary trade. We need a primary and secondary trade because we need to optimize our wager to payout ratio in our favor.

The payout for the primary trade should be greater than the secondary's payout. Equal payouts will undoubtedly result in a loss in the end (unless your broker grants payouts for out of the money trades). Your broker or exchange will also need to have a feature that allows you to exit a trade early.

Now, in order to use this strategy correctly you will need to buy a out of the money Call option and then sell an out of the money Put option. (This is where binary exchanges become very useful.) Again, the secondary trade's payout must be lower than the primary trade's. You also need to ensure that both trades have the same wagered amounts (unless payouts are the same) and expiry times.

By following these steps, you would effectively be opening a Call without actually investing any money at all. This is due to the fact that you're earning money by selling the Put position beforehand.


In short, if price rises and makes the Call profitable and the Put a loser, then you're making money off the Call option by not even risking your own money!

This strategy is an excellent way to inflict the least amount of risk on your account.

But again, this strategy isn't for everyone, and it will not work with every broker. If you do have a broker who has a “Sell Contract” function, then your profit potential is completely unlimited.