Risk Reversals Suggest Weak Hands Are Long USD, Yen
Risk reversals can be used to represent expectations on currency direction. We often peruse the 25 Delta Risk Reversal to see how a market is positioned towards a currency. This helps us to take a view on whether a currency is overbought, oversold or within normal ranges.
For those unfamiliar, a risk reversal consists of a pair of options, a call and a put, on the same currency, with the same expiration (one month) and sensitivity to the underlying spot rate. Risk reversals are quoted in terms of the difference in volatility between the two options.
Investing, Long Term Investment, stock market | admin March 18, 2010
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