High-Risk Options Bet on Bond Rally: Seeking Clarification on Trade Mechanics

Hey everyone,

I came across an article about a high-stakes Treasury options trade that caught my interest, but I'm having some trouble understanding the mechanics of the trade. Here's a summary:

• A trader entered into a risk reversal position with Treasury options.
• The trade involved selling put options and buying call options on the 10-year Treasury note futures with strike prices of 108.25 for the puts and 109.75 for the calls.
• The position cost about $150,000 and stands to make around $15 million if the 10-year yield drops to 4.25% by May 24. Conversely, it could lose as much if the yield rises to 4.7%.
• Profit starts if the yield falls below 4.35%, and losses begin if it rises above 4.58%.

The trade might be a hedge against other positions or a bet on increased volatility.

I understand the basics of calls and puts, but I'm unclear about a few things:

1. How exactly does a risk reversal work in this context?
2. Why would a trader choose this strategy over others?
3. How do changes in implied volatility impact this position?
4. What kind of adjustments can the trader make if the yields start to move against their position?

Would appreciate any insights or explanations from the community. Thanks!

https://archive.ph/ntd4g