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Define: Risk Reversal



Risk Reversal is a way of using options for hedging or leveraged speculation without paying extra costs.

This is made possible by financing the purchase of one options with the sale of another. For a bullish risk reversal speculation position, out of the money call options are bought financed by the sale of an out of the money put option. For a bearish risk reversal speculation position, out of the money put options are bought financed by the sale of an out of the money call option.

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