Reversal Arbitrage

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Reversal Arbitrage

A riskless arbitrage that involves selling the stock short, writing a put, and buying a call. The options have the same terms.

Reversal Arbitrage

A series of transactions in which an investor short sells a security, buys a call, and sells a put. The call and the put both have the short sold security as the underlying asset. Reversal arbitrage is riskless because, if the value of the underlying increases, the call is exercised and negates the short sale. On the other hand, if the value decreases, the put will be exercised and also negates the short sale.

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