Keeping the Davis reflector in hanging basket ("catch rain") orientation is the most important factor. A bit of slack in its halyard should help as the boat heels. Davis also recommends it be 10" below the spreader, with a loose loop around the shrouds to keep it from spinning. Our rules require it be 13' above the water - this might be close on smaller boats with upper and lower spreaders.
As to the tape, I use plastic electrical tape. I think it's thin enough around the edge for the taped-up reflector to still be in compliance with the diameter requirements (per Alan's post above). Besides, given the choice of a possibly weaker signal or damage to my primary means of propulsion (my main), I'll accept the weaker signal.