**25 Delta Butterfly & 25 Delta Risk Reversal**

In the currency option market, prices are quoted for standart moneyness levels for different time to expiry periods. These standart moneyness levels are At the money level, 25 delta out of the money level and 25 delta in the money level (75 delta) .

Since out of the money levels are liquid moneyness levels in the options market, market quotes these levels as 25 delta call and 25 delta put . If a trader has the right model, he can build the whole volatility smile for any time to expiry by using the three points in the volatility surface.

In the options market 25 delta calland 25 delta put points are not quoted as volatility. They are quoted according to their positions to at the money volatiltiy level. These parameters are 25 delta butterfly and 25 delta risk reversal.

**Risk Reversal:**

Risk reversal is the difference between the volatility of the call price and the put price with the same moneyness levels. 25 delta risk reversal is the difference between the volatility of 25 delta out of the money Call and 25 delta out of the money Put.

RR25 = 25 Delta Call – 25 Delta Put

**Butterfly:**

Butterfly is the difference between the avarage volatility of the call price and put price with the same moneyness level and at the money volatility level. In other words for example for 25 delta level, butterfly defines how far the average volatility of 25 delta call and 25 delta put is away from the at the money volatiltiy level.

BF25 = (25 Delta Call + 25 Delta Put ) /2 – ATM

- DE Pricing Engine

**Derivative Engines Real Time Option Pricing Engines are free for a**

Sign Up free...

__limited time.__Sign Up free...

- What can you do with Derivative Engines ?

**Option Pricing**

- Single Vanilla Option

- A Portfolio of Vanilla Options

- Single Barrier Options

- Binary Options

**More in research...**

**Structured Products Pricing**

- Investment Products

- Hedging Products

- Trading Products

**More in research...**

**Trading Strategy Auto Suggestor**

**On research...**