In this section

Definition

A RR is obtained either by buying a call and selling a put or selling a call and buying a put.

Is a cheaper strategy compared to a plain vanilla as the sold option covers the cost of the purchased option, sometimes even making it zero cost strategy.

Value

The value of a RR buying the call and selling the put:

	Underlying	Volatility	Fwd Points	Maturity
Up	Increase	-----	Increase	-----
Down	Decrease	-----	Decrease	-----

The value of a RR buying the put and selling the call:

	Underlying	Volatility	Fwd Points	Maturity
Up	Decrease	-----	Decrease	-----
Down	Increase	-----	Increase	-----

Payoff

At expiry, either the buyer of the RR or the seller could make money depending if the spot moves in the direction of the option ( call-up or put-down ) he holds

Scenarios - Risk

One of the counterparties will lost the premium as he won´t exercise its option
Besides that, he could loss even more, potential unlimited loss, asx he is short the other option

Player Profile

Trading
Hedging

Typical Uses

Hedging purposes reducing considerably the premium
Trading purposes as you speculate with the direction