Dow Jones risk reversals offer significant upside leverage

Nov. 16, 2017

Options Backtesting Results

Historical average return: +$997.21 (backtested over 17.9 years)
Historical success probability: 82.4%


Risk reversals on the Dow Jones ETF DIA are currently offering significant upside leverage with downside risk that is virtually the same as owning stock outright. Options prices are currently exhibiting such high skew that Q1 2018 call options are 70% cheaper than similar put options. A backtest of this options strategy shows an 82% probability of profit with significant returns if U.S. equities continue to rise.

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