What is a put-call parity calculator?

This put-call parity calculator shows the relationship between a European call option, put option, and their underlying asset. By inputting information, you can see what any of these variables should be if this parity relationship were to be held. Below is a quick preview of CFI’s put-call parity calculator:

What happens if put-call parity is violated?

If the put-call parity is violated, then arbitrage opportunities arise. You can determine the put-call party by using the formula C + PV (x) = P + S. As noted above, the put-call parity is a concept that applies to European options. These options are of the same class, meaning they have the underlying asset, strike price, and expiration date.

Why is it important to understand put call parity theory?

It is important to understand put call parity theory, because this dependence must exist in theory. With European put and circles, if this relationship is not maintained, it leaves room for arbitration. By rearranging this formula, we can solve any of the components of the equation. This allows us to create a synthetic call or put option.

Does put-call parity apply to American options?

This concept says the price of a call option implies a certain fair price for the corresponding put option with the same strike price and expiration and vice versa. Put-call parity doesn't apply to American options because you can exercise them before the expiry date. If the put-call parity is violated, then arbitrage opportunities arise.