When to use: When you are bullish on the market and
uncertain about volatility. Normally this position is initiated as
a follow-up to another strategy. Its risk/reward is the same as
a LONG FUTURES except that there is a flat area of little or no
gain/loss.
Profit characteristics: Profit increases as market rises above
the long call strike price. Profit at expiration is open-ended and
is based on the exercise price of B +/– price received or paid
to initiate position.
Loss characteristics: Loss increases as market falls below the
short put. Loss at expiration is open-ended and is based on
the exercise price of A +/– premium received or paid to initiate
position.
Decay characteristics: Time decay characteristics vary
according to the relationship of the call strike price, put
strike price and the underlying futures price at the time the
position is established. The position is time decay neutral (not
affected) if the futures price is exactly mid-way between the
call and put strike prices; long time decay (benefits from time
decay) when the futures price is closer to the call than the put
strike price and short time decay (time decay erodes the value
of the position) when the futures price is closer to the put than
the call strike price
I was thinking about building a Long Risk Reversal Strategy bases on details mentioned.Can someone help in with more inputs how to start about?
