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Home        Knowledge Base        Equity Derivatives and Structured Products Glossary        Reversal

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Reversal

Search definitions        Search   Reversal To take advantage of mispriced options by creating a synthetic Long futures Position and edging it by selling futures contracts against it. A trader may buy an undervalued call, at the same time selling a fairly valued put and buying a Futures Contract. The same strategy could be applied if the put was undervalued. The ability to undertake this riskless Arbitrage relies on Put-call parity. See also Convergence trade, Put-call parity Posted by  Privatebanking.com     Back     Print     Email

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