Anybody can explain the difference between collar and risk reversal ?
(If you look up risk reversal in the index of the curriculum, it reads, “See collar”.)
see page 352 in curriculum- says
In professional FX markets, having a long position in a call option and a short position in a put option is called a risk reversal
which is exactly opposite of collar- long put and short call???
i find this useful:
The reason why a risk reversal is so called is because it reverses the “volatility skew” risk that usually confronts the options trader. In very simplistic terms, here’s what it means. OTM puts typically have higher implied volatilities (and are therefore more expensive) than OTM calls, because of the greater demand for protective puts to hedge long stock positions. Since a risk reversal strategy generally entails selling options with the higher implied volatility and buying options with the lower implied volatility, this skew risk is reversed.