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Market Structure
What Is a Reversal (Arbitrage)?
If a conversion harvests one kind of parity mispricing, a reversal harvests the other. Together they keep the options market honest.
NoVo Options Trading · 2026
A reversal is the opposite of a conversion — combining short stock, a short put, and a long call to capture risk-free profit from the opposite put-call parity mispricing. Another market-maker arbitrage.
How it works
You short the stock, sell a put, and buy a call (same strike/expiration). The long call + short put = synthetic long stock, offsetting the short stock — a fixed, known payoff. When options are mispriced in the direction opposite to what a conversion exploits, this locked-in position yields a risk-free profit. It’s the mirror-image arbitrage.
Why it matters
Together, conversions and reversals enforce put-call parity from both sides — whenever call/put/stock prices drift out of line either way, one of these arbitrages appears and gets executed until the mispricing closes. This constant policing is why retail traders essentially never find free money in liquid options: the arbs have already taken it.
Conversion and reversal are the two halves of parity enforcement — one for each direction of mispricing. Between them, free money doesn’t survive.
The takeaway
A reversal is the opposite-direction arbitrage to a conversion, enforcing put-call parity. Both are professional tools that keep options priced consistently. Not retail strategies, but they explain why the options market is efficient enough that no simple free edge exists.
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.