Consider a pair of at-the-money European call and a put options written on the same non-dividend-paying stock with the same maturity. Which of the following statements is most accurate?
A) The minimum price of the call is at least as much as that of the put.
B) The minimum price of the call is equal to that of the put.
C) The minimum price of the call is less than that of the put.
D) There is not enough information to decide.

Question

Quizplus · Accepted Answer

The call option gives the holder the right to buy the stock at the strike price, while the put option gives the holder the right to sell the stock at the strike price. Since the stock is at-the-money, the strike price is equal to the current stock price. Therefore, the minimum price of the call option is the current stock price, which is at least as much as the minimum price of the put option, which is also the current stock price.

Consider a Pair of At-The-Money European Call and a Put