Put-call parity can be used to show:
A) How far in-the-money put options can get
B) How far in-the-money call options can get
C) The precise relationship between put and call option prices given equal exercise prices and equal expiration dates
D) That the value of a call option is always twice that of a put given equal exercise prices and equal expiration dates

Question

Quizplus · Accepted Answer

Put-call parity is an important principle in options pricing. It states that the price of a call option plus the present value of the exercise price must equal the price of a put option plus the current stock price. This relationship holds true for options with equal exercise prices and equal expiration dates. Put-call parity can be used to determine the fair price of either a put or call option by comparing it to the other side of the equation. Therefore, the best choice is C, which states that put-call parity can be used to show the precise relationship between put and call option prices given equal exercise prices and equal expiration dates. Choices A, B, and D are incorrect because they do not accurately describe what put-call parity is used for.

Put-Call Parity Can Be Used to Show