A Primer on Put-Call Parity and How to Use It
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This week, we review what are known as the put/call parity rules. If you know one rule - and you remember your high school algebra - you can quickly master all the rules.
Put-Call Parity
A principle referring to the static price relationship, given a stock's price, between the prices of European put and call options of the same class (i.e. same underlying, strike price and expiration date).
Put-call parity relationship
The relationship between the price of a put and the price of a call on the same underlying with the same expiration date, which prevents arbitrage opportunities.
Put swaption ...
Wiggins, Box spread and put-call parity tests for the S&P 500 index LEAPS market, Journal of Derivatives, 8(4) (2001): 62-71. The box-spread reveals an arbitrage profit insufficient to cover transaction costs.
Billingsley, R.S. and Don M.
Put-Call Parity The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, that prevents arbitrage.
Put-Call Ratio A ratio of the trading volume of put to call options.
Options Put-Call Parity
Stock Future Trading
Online Stock Option Trading
Online Trading And Stock Options
On the Trading Floor
Ezine Online Stock Trading
Online Stock Trading No Minimum
Online Stock Trading Newspaper ...
Due to put-call parity, a long butterfly created using call options will behave like a long butterfly created using put options. In other words, it doesn't really matter whether you use calls or puts to create your long butterfly.
Call (business term)
Yield to Call (finance term)
Strike Price (business term)
Put-Call Parity (finance term)
Diagonal Spread (finance term)
Selling the Spread (finance term)
Buy and Write Strategy (finance term) ...
Put-Call Parity
Theoretical Pricing Models: Binomial Option Pricing And The Black-Scholes Formula
The Greeks: Delta, Gamma, Theta, Vega, and Rho
Employee Stock Options; Back-dated Options
Exotic Options ...
The examples below have shares as the underlying, but may be generalised to other instruments. The value of a put option can be derived as below, or may be found from the value of the call using put-call parity.
Arbitrage Free Pricing ...
arbitrage explains some rather obvious questions in option pricing, such that the value of a call option will never rise above the underlying stock price itself. However, the most frequent nontrivial example of no-arbitrage bounds is put-call parity ...
Related: Call Put-call parity relationshipThe relationship between the price of a put and the price of a call on the same underlying with the same expiration date, which prevents arbitrage opportunities.
 See also: Parity, Option, Stock, Options, Investment
  
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