Put-call parity can be used to show
A)how valuable in-the-money put options can get.
B)how valuable 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 establishes a relationship between the prices of European call options and put options with the same strike price and expiration date. Specifically, it states that the sum of the price of a call option and the present value of the exercise price must be equal to the sum of the price of a put option and the current price of the underlying asset. This parity holds true in a theoretical, frictionless market and can be used to check for mispricings in options or to help determine the fair value of an option. It does not relate to the value of in-the-money options or the relative values of calls and puts.

Put-Call Parity Can Be Used to Show