Risk reversal (shown VIX) & workings of the reverse carry trade
The reverse carry trade is what’s called an event driven strategy. It’s not a trading system you can use every day – yet at the right time it can generate enormous profits very quickly, and is therefore one you should keep up your sleeve ready to use.
Reverse carry trading is a system you can use when there’s an abrupt reduction in risk tolerance. While these shifts may happen on a small scale, daily and weekly, the dramatic contractions in risk tolerance come off the back of major global crises.
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