CALL-PUT PARITY

CALL-PUT PARITY

It is an option pricing concept. According to call-put parity the price of underlying, call option, put option and future should be in equilibrium. If they are not in equilibrium then call-put parity exits and we can take arbitrage opportunities.

The basic formula for checking call-put parity is as follows:

C - P – F = 0

                                                                                                                                                                                                                                                            Where, C = Call price

                                                                                                            P = Put price

                                                                                                            F = Future price

                                                                                                            X= exercise price

Here, in this formula we are taking assumption that there are no carrying costs for options.