Put call parity - 7 min. screencast

by David Harper, CFA, FRM, CIPM

FRM |

Here is an illustration of the idea behind put-call parity: two portfolios will have identical payoffs under any future stock price scenario:

• A call (strike = $10 in this example) plus a bond with face value of $10
• A put plus a share of the stock

Another way to view this is: to buy a call and sell a put (blue formula below, left side) is synthetically equivalent to a forward contract (stock minus discounted strike; note this is also the minimum value of the call option!)

Screencast:

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