The Risk Reversal strategy is a hedging approach combining a long call and a short put, typically used in bullish scenarios. It allows traders to gain exposure to an asset without full capital commitment, but it carries significant risks, including potential losses if the asset declines sharply.
This strategy benefits from selling high-implied volatility puts and buying lower-volatility calls, making it effective in specific market conditions. However, traders must carefully manage margin requirements and the possibility of assignment.
