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. (Put-call parity does not apply to American options because they can be exercised prior to expiry.) This relationship is illustrated by arbitrage principles that.

### Understanding Put-Call Parity. Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration. Chart Illustrating the relationship between call, put and stock. Put Call Parity Components Formula. Call - Put = Stock - Strike. These are the basic components for the put call parity formula: Buy Call Option; Sell Put Option; Equals Long Stock. If you are long a call and short a put at the same strike price, in the same expiration. In financial mathematics, put–call parity defines a relationship between the price of a European call option and European put option, both with the identical strike price and expiry, namely that a portfolio of a long call option and a short put option is equivalent to (and hence has the same value as) a single forward contract at  ‎Assumptions · ‎Statement · ‎Derivation · ‎History.

Related terms:

Parity is functional equivalence. The genius of option theory and structure is that two instruments, puts and calls, are complimentary with respect to both pricing and valuation. Therefore, by knowing the value of a put option you can quickly calculate the value of the complimentary call option (with the same strike price and. By gaining an understanding of put/call parity, one can begin to better understand some mechanics that professional traders may use to value options, how supply and demand impacts option prices and how all option values (at all the available strikes and expirations) on the same underlying security are related. Prior to. Put call parity is a term to describe a call and a put of the same strike and the price of the underlying stock.

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