A risk reversal that allows investors to avoid paying a premium for an option. In this option strategy, the premium received from the sale of a call option (i.e., the cap leg) is meant to exactly match the premium paid for the purchase of a put option (i.e., the floor leg). Typically, an investor willing to establish a no-cost risk reversal will designate a strike price with a corresponding expiration date, and then locates a party willing and ready to provide the other side of the transaction.
The no-cost risk reversal is alternatively known as a no-cost collar or a zero-premium risk reversal.
Comments