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Reversal

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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
 
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