According to put-call parity, if a stock is overpriced, the investor should sell the stock short, sell the put, buy the call, and buy the bond.

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Put-call parity establishes a relationship between the prices of European put and call options with the same strike price and expiration date. If a stock is overpriced according to this principle, an arbitrage opportunity exists. The investor can exploit this by short selling the overpriced stock, selling a put option, buying a call option, and investing in a risk-free bond that matches the stock's payoff at the option's expiration. This strategy ensures a risk-free profit due to the mispricing.

According to Put-Call Parity, If a Stock Is Overpriced, the Investor