Risk glossary

 

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To buy/sell mispriced options and hedge the market risk using only options, unlike the conversion or the reversal, which use futures contracts. If a certain strike put is underpriced, the trader buys the put and sells a call at the same strike, creating a synthetic short futures position. To get rid of the market risk, the trader sells another put and buys another call, but at different strike prices.

* see also conversion; reversal

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