- Risk reversal hedges a long or short position with put and call options.
- Risk reversal protects against adverse price movement, but limits profit.
- Long position holders sell on a risk reversal by writing a call option and buying a put option.
- Short position holders go long to avoid risk by buying a call option and writing a put option.
- Forex traders refer to risk reversal as the difference in implied volatility between similar call and put options.