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A derivative strategist is telling clients that they should use a risk reversal strategy position to buy the stock of Target (TGT) on a decline,
A derivative strategist is telling clients that they should use a risk reversal strategy position to buy the stock of Target (TGT) on a decline, and to participate in any rallies. When the stock was $162.88, he suggested clients sell the November $150 put and buy November $165 calls for a cost of $2.81. The risk-reversal strategy positions investors to buy stocks on a decline and to participate in any advances. If the stock is at $180, the call is worth $15. If the stock declines - and this is the key risk - be prepared to buy the stock at the put strike price $150 even if the stock is at $130. Investors also could cover the short put. If the stock is at $130, the put would cost $20.
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