Simply terminology: Long otm put / short otm call = risk conversion [short synth/implied long natural] Long otm call / short otm put = risk reversal [long synth/implied long natural] The terms reflect the synthetic-side of a 3-way conversion arbitrage. The split-strike adds convergence-risk, hence the "risk" term. Obviously no natural long or short is used, but the terminology stuck. It's simply a long or short split-strike synthetic. Most generically refer to both as "risk reversal", long or short. No follow-up, other than an offset. It's simply a long bet.
Lost you on the index print part. I thought I undertood the term, but it wouldn't make sense the way I understand it.
That's the way I understood it, but if you're long the strangle wouldn't any move be ok? Or are you referring to the idea that a bear move usually results in a rise in vols, while the bull move has the opposite effect?
It's possible to complete the reversal by going short underlying here once you have gained on the synthetic to lock it in - is this not worth it? Or does the convergence risk overwhelm the lock. Obviously it's not a true lock due to the split-strike synthetic. Your trade could become a big winner through the combination of skew flattening and long deltas if we rally. How does this work the other way around? e.g. short split-strike synthetic as per earlier trade. It seems you're purely relying on deltas there. MoMoney.
No, long wings of a time fly if buying the vol to open the position -- selling the body at a later date. I normally sell the body as the initial trans.
It's not a reversal at that point, it's a collar. The split strike negates any possibility of arbitrage. Yes, I prefer to buy the synthetic in index due to the +theta at neutrality. Normally I would do 2x the size in the long synth // short synth, assuming = confidence seen in the signal.
Sold the long reversal at $3.80 debit, gain of $5.50 on 50. Gain of $27,425 Prior booked PnL $20,850 Blotter PnL from inception of journal: $48,275, 4.8% [journal blotter 3]