Risk glossary

 

Cylinder

A cylinder, also known as a range forward or risk reversal, is the simultaneous purchase of an out-of-the-money put option and sale of an out-of-the-money call option at different strike prices. The buyer can hedge its downside at reduced cost, since the purchase of the put is partly financed by the sale of the call, but at the cost of relinquishing any upside beyond the higher strike.

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