Risk Reversal
(redirected from Risk Reversals)Risk Reversal
1. The sale of a call and the purchase of a put with the exact same terms. One conducts a role reversal when the price for the underlying asset is falling and one wishes to hedge one's risk. A risk reversal reduces profit potential and eliminates it if the underlying asset rises back above the strike price.
2. In currency options, the difference between the delta of a call and the delta of a put. Because delta is a measure of volatility, risk reversal helps one determine the potential return of investing in one as opposed to the other.
2. In currency options, the difference between the delta of a call and the delta of a put. Because delta is a measure of volatility, risk reversal helps one determine the potential return of investing in one as opposed to the other.
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