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Risk Reversal

The term risk reversal is used in a couple of different ways in trading:

In foreign-exchange trading, risk reversal is the difference in delta and volatility between similar call and put options.

In options trading outside of FOREX (Foreign Exchange Market), risk reversal is an aggressive vertical trade that can be done long or short in the market.

When doing a risk reversal long the market, you are selling a put option and buying a call option in the same expiration month.

If you are doing a short risk reversal, you are selling a call and buying a put option in the same expiration month.

In equity trading, risk reversals are also called synthetic long or short.

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