Assume you own both a June 20 put and a June 20 call on ALPO stock.Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.

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Quizplus · Accepted Answer

Put-call parity is a principle that defines the relationship between the price of European put options and European call options of the same class, that is, with the same underlying asset, strike price, and expiration date. If put-call parity does not hold, arbitrage opportunities exist, allowing traders to profit from price discrepancies between the put and call options. Owning both a put and a call at the same strike price (in this case, June 20) allows for potential profit if the actual prices deviate from the theoretical prices suggested by put-call parity, regardless of the actual stock price.

Assume You Own Both a June 20 Put and a June