Investors will be watching for any news of a positive nature today as Donald Trump and Vladimir Putin meet in Anchorage, Alaska, to start the peace process in Ukraine.

After yesterday’s subdued day of trading, Investors will also digest the retail sales data expected to be released first thing Friday morning. Economists predict that retail sales in July rose by 0.6%, matching the June increase. Yesterday’s report from the Bureau of Labor Statistics showed that wholesale inflation in July was the highest increase in three years, up 0.9% from June, three times higher than what economists were expecting. 

The markets have been mainly unaffected by the economic uncertainty caused by the tariffs on U.S. imports. If the retail sales data doesn’t meet projections, it could lead to a down day in the markets. I guess we’ll see. 

In yesterday’s options activity, Upstart (UPST) had options volume that was double the daily average, with five that were unusually active, including two in the top 11. 

From where I sit, the activity sets up for a bold risk reversal position. Here’s why.

Less than three weeks to the NFL’s first regular-season game. Can’t wait. Have an excellent weekend.   

The Options in Question

As I said in the introduction, the AI lending platform had five unusually active options on Thursday. 

As you can see, there were four calls and one put, with all but the Aug. 29 $80 call expiring in 8 days. With Upstart’s shares down 23% since announcing Q2 2025 results after the Aug. 5 close, the risk reversal strategy looks to be an interesting play for aggressive investors. 

What Is a Risk Reversal Strategy?

This is an options strategy where you buy and sell options at the same time with the same expirations. The strategy can be bullish or bearish. The former is generally the more common of the two. It can be used to hedge against stock you already own or to make a bullish bet on the underlying stock, which in this situation is Upstart. 

In the bullish example, you buy an OTM (out-of-the-money) call and sell an OTM put, both with the same expiration date. Effectively, you are long Upstart. In the bearish example, you buy an OTM put and sell an OTM call. 

In the former, you’re betting on Upstart’s share price moving higher; in the latter, you expect it to fall in value. In both cases, selling options generates income that offsets some of the cost of the options bought. 

While you can use options with different expiration dates, it adds a layer of complexity that many retail investors probably shouldn’t attempt. I certainly wouldn’t, and I’ve been writing about options for several years now. 

What are the Best Two Options for the Risk Reversal?

First, any risk reversal bet based on the five above will include the Aug. 22 $59 put. Secondly, it won’t include the Aug. 29 $80 call. That leaves three calls: Aug. 22 $66, Aug. 22 $65, and Aug. 22 $64.   

Let’s first discuss the bullish example. 

In this case, you’re selling the OTM Aug. 22 $59 put. That provides a premium income of $72, an annualized return of 56.4% if done independently without a simultaneous buy of an OTM call. 

If you’re bullish about Upstart and think the concerns about inflation and increased competition are overblown, this would be a good way to generate income while possibly getting a better entry point for going long. 

Now, we consider the three OTM calls to buy.

As you can see from the profit probability numbers, your best bet if you were buying this independent of the put would be the $64 call at 34.26%. With an ask price of $2.42, your net debit on the combo trade is $1.70, or $170. 

So, to make money on this risk reversal bet, the share price has to appreciate by $1.87 (2.9%) to the breakeven of $65.70 [$64 strike price + $1.70 net debit]. Based on the profit probabilities of the $65 and $66 calls -- 31.23% and 27.79% -- I’ll say the profit probability of $65.70 is approximately 29.5%. It’s good but not great. 

I’d go with the $66 call. The net debit is $0.86 or $86. The breakeven is $66.86. The share price has to appreciate by $3.03 (4.7%). If the share price can move 23% in six trading days, it can certainly move 4.7% in the same number of days. And it’s half the outlay.   

Now, let’s quickly consider the bearish example. It’s the reverse of the bullish risk reversal bet. In this case, you buy the $59 put and sell one of the three calls. 

In this case, the long put would cost you $0.77 or $77. 

Now, we consider the premium income from each of the three calls.  If you look at the five calls from earlier, you’ll see that selling the $66 call would generate $1.51 ($151) in premium, the $65 would generate $1.90 ($190), and the $64 would generate $2.34 ($234). The net credits would be $74, $113, and $157, respectively.

In the bearish case, you’re expecting the share price to fall. If instead, it moves higher, your breakeven price on each of them is $66.74, $66.13, and $65.57. 

If it were me, I’d go with the $66 strike, because it has the lowest chance of being in the money in eight days. 

My guess: yesterday’s options investors felt the same--hence the 65.49 Vol/OI ratio for the $66 call.    

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.