What components define a risk reversal in trading?

A risk reversal in trading is specifically constructed by taking a long position in a call option while simultaneously taking a short position in a put option. This strategy is often used to express a bullish view on the underlying asset. By being long a call, the trader gains the right to buy the asset at a predetermined price, benefiting from potential upward movement. Meanwhile, by shorting a put, the trader is obliged to buy the asset at the strike price if the option is exercised, which is consistent with a bullish outlook since it implies the expectation that the asset's price will remain above that strike price.

The risk reversal strategy effectively allows traders to hedge or speculate on the price movement of the underlying asset while using options to manage risk. This approach is distinct from other options strategies, as the combination of a long call and a short put specifically constructs a bullish bias. In contrast, the other options describe strategies that do not align with the standard definition of a risk reversal. Long puts suggest a bearish outlook, while the simultaneous buying of both calls and puts creates a straddle, and shorting both results in a strangle or a naked position that does not capture the risk reversal's intended bullish character.