Call-put parity, Financial Management

Call-Put Parity

P + S = C + E * [1/(1+i)] ^n     where:

   P = the market price of the put
   S = the market price of the stock
   C = the market price of the call
   E = the exercise price of both the call and the put
   i = the risk free rate ( taken as 5.5 %)
   n = the number of years until the expiration date of the options


Thus, if P + S > C + E * [1/(1+i)] ^n, you should buy calls because their value must increase for the equation to balance. 

On the other hand if P + S < C + E * [1/(1+i)] ^n, you should buy puts.

For Example -

For the March series, we find Call Option should be purchased for strike prices of Rs. 720 and 740.


Strike Price







For the March series, we find Put Option should be purchased for strike prices of Rs. 760, 780, 800, 820, 840, 860, 880 and 900.


Strike Price


















Posted Date: 7/25/2012 7:45:43 AM | Location : United States

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