A risk reversal is an options strategy consisting of simultaneously buying an out-of-the-money call and selling an out-of-the-money put (or vice versa) on the same underlying asset with the same expiry. In its basic form, a long risk reversal expresses a bullish view — the investor profits if the underlying rises, while being exposed to losses if it falls. Risk reversals are widely used in currency markets to gauge market sentiment — a positive risk reversal in USD/INR indicates calls are more expensive than puts, reflecting higher demand for upside protection. For equity options traders on NSE, risk reversals on Nifty 50 or individual stocks help express directional views at low or zero net premium, since the premium received from selling the put offsets the cost of buying the call.
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