# The Put-Call (Options) Parity

### Abdulla Javeri

In this video Abdulla outlines the concept of Put-Call Parity and how to formulate it into an expression and get all six combinations (long and short positions). He describes the arbitrage-free relationship between call and put premiums for European options. Perhaps most importantly, Abdulla explains how to take advantage of risk-free profit that arises from arbitrage opportunities

In this video Abdulla outlines the concept of Put-Call Parity and how to formulate it into an expression and get all six combinations (long and short positions). He describes the arbitrage-free relationship between call and put premiums for European options. Perhaps most importantly, Abdulla explains how to take advantage of risk-free profit that arises from arbitrage opportunities

Speak to an expert

Speak to an expert today to access this and all of the content on our platform.

### The Put-Call (Options) Parity

6 mins 1 sec

Overview

Put–Call parity is an important concept in the option world. The original Black Scholes model priced a European call option on a non-dividend-paying stock. The price of the equivalent put option was derived using the concept of Put-Call Parity.

Key learning objectives:

• Describe the put-call parity

• Understand how to calculate the fiduciary call

• Identify one of the keys to understanding the put-call parity

## Speak to an expert

Speak to an expert today to access this and all of the content on our platform.

Summary

#### What is the put-call parity?

The put-call parity defines the arbitrage-free relationship that determines the connection between the call premium and the equivalent put premium, under the following conditions:

• European style options
• Same underlying assets
• Same expiry
• Same strike

Given a call premium the put premium must be at a level consistent with Put-Call Parity so that the actual futures price and the synthetic futures price are identical, excluding transaction costs.

#### How do we calculate the fiduciary call?

Fiduciary call - Protective put. This relationship can also be expressed as;

call premium plus present value of the strike equals put premium plus stock.

#### What is one of the keys to understanding the Put-Call Parity?

• The understanding that by combining positions in two out of the following three elements Future, call and put, we can synthetically create a position in the third element
• It can be encapsulated in the simple expression, F = C – P. What this says is that a long futures position plus F, can be synthetically created by combining a long call plus C and a short put minus P
• By rearranging the expression we can get all six combinations, reflecting the long and short positions for each. For example, buying a call and selling a future gives us a long put position.  Similarly selling a future and selling a put gives us a short call position

## Speak to an expert

Speak to an expert today to access this and all of the content on our platform.

### Abdulla Javeri

Abdulla’s career in the financial markets started in 1990 when he entered the trading floor of the London International Financial Futures Exchange, LIFFE, and qualified as a pit trader in equity and equity index options. In 1996, Abdulla became a trainer for regulatory qualifications and then for non-exam courses, primarily covering all major financial products.

There are no available videos from "Abdulla Javeri"