Risk Reversal
An options structure combining a long out-of-the-money call with a short out-of-the-money put (long risk-reversal) or the mirror (long put + short call). The structure is a direct bet on the SHAPE of the volatility skew -- specifically the gap between the call-wing IV and the put-wing IV. In FX and equity-index markets, risk-reversals are quoted directly as vol-point spreads (e.g., "25-delta risk-reversal at -1.5 vols" means the 25-delta call trades 1.5 vol points below the 25-delta put). Distinct from a straddle (which trades vol level) and a butterfly (which trades convexity).
Lessons that use this term
Related terms
American Option · Asian Option · Barrier Option · Basket Option · Butterfly Spread · Calendar Spread
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