The core idea
Risk reversal turns the slope of the smile into one signed number.
The metric compares the implied volatility of an out-of-the-money call with an out-of-the-money put at the same delta. It is a compact way to track whether the market is paying more for upside exposure or downside protection.
Choose a delta
Most desks use 25-delta or 10-delta nodes so the comparison stays away from ATM but inside liquid wings.
Read both wings
Take the call implied volatility and put implied volatility for the same expiry and delta distance.
Keep the sign convention visible
This guide uses call IV minus put IV. A negative value means puts are richer than calls.
Conventions differ across markets. Derivasys labels the sign so the dashboard remains readable: on this page, a negative 25Δ RR means the put wing is above the call wing.
Formula
Use the same expiry and the same delta on both sides.
The 25-delta risk reversal is calculated from the 25-delta call implied volatility and the 25-delta put implied volatility. The result is usually quoted in volatility points.
Worked example
A BTC put wing at 64% and call wing at 51% gives a negative RR.
With the convention used here, the 25Δ risk reversal is 51% - 64% = -13 volatility points. The negative sign says downside implied volatility is richer than upside implied volatility.
64.0%
51.0%
51.0 - 64.0 = -13.0 vol points
Put demand or downside protection is richer than call demand.
Dashboard usage
Risk reversals are most useful when viewed across expiries.
A single expiry tells you the current skew at one tenor. A surface view shows whether the skew is front-loaded, persistent, or isolated to a noisy quote set.
Direction of skew
Risk reversal is the clean signed readout of whether downside or upside options are more expensive.
Surface monitoring
A live panel can show whether skew changes are broad across expiries or isolated to one tenor.
Scenario reports
Delta-node risk reversals make it easier to compare smile changes before and after spot or forward moves.
Model diagnostics
Large risk reversal jumps can flag fit instability, stale quotes, or a real change in wing demand.
FAQ
Common questions about risk reversals.
What is a risk reversal?
A volatility risk reversal is the difference between same-delta call and put implied volatilities for the same expiry. This page uses 25-delta call IV minus 25-delta put IV.
What does a negative risk reversal mean?
Under the call-minus-put convention, a negative risk reversal means the put wing is more expensive than the call wing.
Is a risk reversal a trade or a metric?
It can be both. This page focuses on the volatility metric. The trade structure buys one wing and sells the other.
Why use delta instead of strike?
Delta nodes compare similar parts of the smile across expiries and market levels. Fixed strikes can drift from ATM into wing territory as the forward moves.
References