expiration, when combined with the underlying stock, should provide equivalent returns. A simple example is put and call prices when the stock is at a strike price. Consider a stock with a current share price. Put-call parity allows investors to protect their position in down markets through arbitrage techniques that sometimes come up in very illiquid markets. Put call parity defines the relationship between the value of a call option and a put option with the same strike price, expiration date, and, of course, underlying security. Put Call Parity - Options Trading for Beginners Learn Put Call Parity and apply it to your option trading So, per the principle. Put Call Parity Formula, 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. Put - call parity, we consider a relationship between the prices of European call and put options. Claim Let p be the price of a European put option and c be the price of a European call option with strike price K and maturity T:Then c Ke rT p S 0: 2/11. Because options have an expiration date, we need to value the option not against the current price of the stock but against what the expected value will be at the expiration date. Of Options and Arbitrage" in 1904 that describes the put-call parity in detail. 1 2 Implications edit Putcall parity implies: Equivalence of calls and puts : Parity implies that a call and a put can be used interchangeably in any delta-neutral portfolio. Let's take the basic put call parity formula Call - Put Stock - Strike and expand on this to account for the underlying stocks' dividends and interest rates. In practice, these arbitrage opportunities do not present themselves in anything but the most illiquid markets. These assumptions do not require any transactions between the initial date and expiry, and are thus significantly weaker than those of the. This is the present value factor for.