# OptionsChain — Options Analysis (OA) Risk Reversal Guide
**RR25** and **BF25** are two standard, delta‑based measures traders use to describe the *shape* of an option volatility smile. They tell you **directional skew** (RR25) and **curvature** (BF25).
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## 🧭 Core definitions (trader‑standard)
### **1. 25‑Delta Risk Reversal (RR25)**
RR25 compares the implied volatility of a **25‑delta call** to a **25‑delta put** of the same expiry:
RR25 = IV25DeltaCall - IV25DeltaPut
- In **equity index options**, RR25 is typically **negative**, because 25Δ puts trade at higher IV than 25Δ calls (downside crash protection demand).
[greekslab.com](https://greekslab.com/blog/what-is-volatility-skew-and-how-to-use-it-in-0dte-spx-trading)
- In **FX options**, the same definition is used, though conventions vary slightly by delta definition.
[quantpie.co.uk](https://www.quantpie.co.uk/fx/fx_rr_str.php)
**Interpretation:**
- **RR25 < 0** → downside skew (puts richer).
- **RR25 > 0** → upside skew (calls richer; common in some commodities/FX pairs).
RR25 is the *slope* of the smile.
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### **2. 25‑Delta Butterfly (BF25)**
BF25 measures the **curvature** of the smile relative to ATM:
BF25 ≈ 0.5 × (IV_25Δ_call + IV_25Δ_put) − IV_ATM
- A **higher BF25** means more curvature (a more pronounced “smile”).
[greekslab.com](https://greekslab.com/blog/what-is-volatility-skew-and-how-to-use-it-in-0dte-spx-trading)
- In FX conventions, this is called the **25‑delta strangle** or **smile strangle**, defined identically:
SS_{25\Delta} = \frac{IV_{25\Delta\text{ call}} + IV_{25\Delta\text{ put}}}{2} - IV_{ATM}
[quantpie.co.uk](https://www.quantpie.co.uk/fx/fx_rr_str.php)
BF25 is the *convexity* of the smile.
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## 🧩 How RR25 and BF25 describe the smile
| Measure | What it captures | What a high/low value means |
|--------|------------------|-----------------------------|
| **RR25** | Slope (directional skew) | Negative → downside fear (puts expensive). Positive → upside fear (calls expensive). |
| **BF25** | Curvature (smile shape) | High → wings expensive vs ATM. Low → flatter smile. |
Together, they fully describe the *first two moments* of the smile around ATM.
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## 🧠 Why these measures matter
### **In equities (SPX, STOXX, etc.)**
- RR25 is usually **negative** because markets price crash risk asymmetrically.
- BF25 increases when **tail hedging demand** rises or when **vol-of-vol** increases.
### **In FX**
- RR25 often reflects **macro directional bias** (e.g., USDJPY risk‑on vs risk‑off).
- BF25 reflects **uncertainty** or **event risk** (e.g., central bank decisions).
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## 📌 Practical intuition
### **RR25 (slope)**
Think of RR25 as:
> “Which wing is more expensive?”
- If **puts are expensive**, RR25 < 0.
- If **calls are expensive**, RR25 > 0.
### **BF25 (curvature)**
Think of BF25 as:
> “How much more expensive are wings vs ATM?”
- High BF25 → both wings expensive (fat tails).
- Low BF25 → flatter smile (less tail pricing).
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## 🧪 Example (qualitative)
Suppose for a given expiry:
- ATM IV = 20%
- 25Δ call IV = 19%
- 25Δ put IV = 24%
Then:
- **RR25 = 19% − 24% = −5%** → strong downside skew
- **BF25 = 0.5×(19%+24%) − 20% = 1.5%** → moderate curvature
This is a typical equity‑index pattern.
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## If you want, I can also compute RR25/BF25 from your own option chain
Just give me:
- underlying price
- expiry
- IVs or quotes for ATM, 25Δ call, 25Δ put
(or the raw chain and I’ll extract deltas).
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## Skew charts (vertical + horizontal)
SOAP2 displays skew to help you see how implied volatility varies:
- **Vertical skew**: IV vs strike (at a fixed expiry)
- **Horizontal skew**: IV across expiries or sampled strikes (depending on view)
These charts are meant as “shape” tools:
- quickly spot rich/cheap wings
- identify smile vs skew
- compare call-side vs put-side skew behavior
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Go back to the main help page: [SOAP2 Help Guide](./index.md.html)
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