Consider a hypothetical example in which the volatility of the 25-delta call is 9.8% and that of the put is 10.8%. The risk reversal is then 9.8 − 10.8 = −1.0%. A negative value on USD/JPY means the USD put, which protects against a sharp move toward a stronger yen and weaker dollar, is more expensive, and shows that market participants are more wary of a move in that direction. It is not necessarily an indicator that predicts where the rate will go, however. The call has a strike above the current rate and the put a strike below it, so both are out-of-the-money options, and their strikes are backed out from the delta.
Risk reversal
- Japanese
- リスクリバーサル
- Also known as
- RR
- Last reviewed
- September 25, 2026
This is a draft, shown for review before publication.
A risk reversal is a trade that combines buying a call option and selling a put option whose deltas have the same absolute value. In the currency option market, it is quoted as the difference between the implied volatilities of the call and the put at a delta such as 25-delta.