Call-Put = Stock-Strike.
Put–call parity can be stated in a number of equivalent ways, most tersely as: where C is the (current) value of a call, P is the (current) value of a put, D is the discount factor, F is the forward price of the asset, and K is the strike price. Put–call parity implies: 1  Equivalence of calls and puts: Parity implies that a call and a put can be used interchangeably in any delta-neutral portfolio. 2  If is the call's delta, then buying a call, and selling shares of stock, is the same as selling a put and buying shares of stock. Call-Put = Stock-Strike. Put Call Parity is a theorem that defines a price relationship between a call option, put option and the underlying stock. The conditions for the official theorem to hold true are; 1  The options are of European style. 2  Identical strike price for both call and put options. Call-Put = Stock-Strike. The formula supposes the existence of two portfolios that are of equal value at the expiration date of the options. The premise is that if the two portfolios have identical values at expiration then they must be worth the same value now. Effect of Cash Flows on Put-Call Parity and the Lower Bounds. Put-call parity is the relationship that must exist between the prices of European put and call options that both have the same underlier, strike price and expiration date. For European options, early exercise is not possible. If the expiration values of the two portfolios are the same, their present values must also be the same. This equivalence is put-call parity. Put Call Parity Formula. The basic version of the Put Call Parity formula is; Call-Put = Stock-Strike. The formula supposes the existence of two portfolios that are of equal value at the expiration date of the options. The premise is that if the two portfolios have identical values at expiration then they must be worth the same value now. This is because if the price at expiry is above the strike price, the call will be exercised, while if it is below, the put will be exercised, and thus in either case one unit of the asset will be purchased for the strike price, exactly as in a forward contract. Put–call parity implies: 1  Equivalence of calls and puts: Parity implies that a call and a put can be used interchangeably in any delta-neutral portfolio. 2  If is the call's delta, then buying a call, and selling shares of stock, is the same as selling a put and buying shares of stock. Consider a call option and a put option with the same strike K for expiry at the same date T on some stock S, which pays no dividend. We assume the existence of a bond that pays 1 dollar at maturity time T. The bond price may be random (like the stock) but must equal 1 at maturity. Put–call parity implies: 1  Equivalence of calls and puts: Parity implies that a call and a put can be used interchangeably in any delta-neutral portfolio. 2  If is the call's delta, then buying a call, and selling shares of stock, is the same as selling a put and buying shares of stock. This feature is not available right now. Please try again later. Put call parity derives from the idea we can have two portfolios (one with an option, the other with a put) that have identical payoffs regardless of what happens to the stock. This gives a way to link the value of a call option with a put option.  Options Pricing: Put/Call Parity. AAA |. Many trading platforms that offer options analysis provide visual representations of put/call parity. Figure 7 shows an example of the relationship between a long stock/long put position (shown in red) and a long call (in blue) with the same expiration and strike price. Options Pricing: Put/Call Parity. By Jean Folger. Put/call parity is an options pricing concept first identified by economist Hans Stoll in his 1969 paper The Relation Between Put and Call Prices.. Now we want to buy the left side of the put-call parity equation and sell the right side. Note that the call covers the shorted stock if the stock rises above the strike, and the put is covered by the shorted stock, if the stock price is less than the strike, which explains S t - 30. Put-Call Parity. A portfolio consisting of stock and a protective put on the stock establishes a minimum amount of value for the portfolio that also has an unlimited upside potential. The put-call parity formula shows the relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. For European options, early exercise is not possible. If the expiration values of the two portfolios are the same, their present values must also be the same. This equivalence is put-call parity.
https://en.wikipedia.org/wiki/Put%E2%80%93call_parity http://www.optiontradingtips.com/options101/put-call-parity.html http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/put-call-parity.asp http://www.optiontradingtips.com/options101/put-call-parity.html https://en.wikipedia.org/wiki/Put%E2%80%93call_parity https://en.wikipedia.org/wiki/Put%E2%80%93call_parity http://www.youtube.com/watch?v=Xds9yLsYp_Y http://www.investopedia.com/university/options-pricing/put-call-parity.asp http://thismatter.com/money/options/put-call-parity.htm http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/put-call-parity.asp
formula for put call parity