put call parity

CFA Level I Derivatives
#1

Sir S2000magician, can you pls include a few r examples to put call parity. For example if a question says a protective put is equivalent to … Thanks

#2

Um . . . sure. Here’s basic put-call parity:

Stock + Put = Call + Bond

Here are all of the synthetic (single) securities:

Stock = Call + Bond – Put

Put = Call + Bond – Stock

Call = Stock + Put – Bond

Bond = Stock + Put – Call

Remember that:

  • A protective put = stock + put
  • A fiduciary call = call + bond
  • A covered call = stock – call (i.e., long stock, short call)

So we could rewrite the synthetic securities as:

Stock = Fiduciary Call – Put

Put = Bond – Covered Call

Call = Protective Put – Bond

Bond = Protective Put – Call

Also:

Covered Call = Bond – Put

#3

Many thanks, Infact Thanks a millions.

#4

You’re welcome a million!

#5

AF is ruled by s2000magician… :slight_smile: nice work man…

#6

Amazing explanation s2000 magician

#7

Thanks!