Conversion And Reversion

Conversion & Reversal Arbitrage takes advantage of pricing differentials between the PUTs and CALLs.  For example, a covered CALL position is synthetically the same position as a short PUT. If the short PUT is trading at a higher premium than the covered CALL, and the trader can obtain a more substantial credit by selling PUT, then the trader can exploit the pricing arbitrage.
Synthetic Position Components Closing Instrument Classification
Synthetic Long Stock Long Call + Short Put Short Stock Reversal
Synthetic Short Stock Short Call + Long Put Long Stock Conversion
Synthetic Long Call Long Stock + Long Put Short Call Conversion
Synthetic Short Call Short Stock + Short Put Long Call Reversal
Synthetic Long Put Short Stock + Long Call Short Put Reversal
Synthetic Short Put Short Call + Long Stock Short Put Conversion

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