Put-Call Parity

Put-call parity is a financial principle that links the prices of a call option (right to buy) and a put option (right to sell) on the same asset with the same strike price and expiration date. It states that the cost of a call plus the present value of the strike price should equal the cost of a put plus the current stock price. This relationship helps ensure no arbitrage opportunities exist—meaning there’s no riskless way to make profit from mispriced options. Essentially, it defines a fair relationship between options, guiding traders and investors in assessing option prices.