Put-call parity can be used to show:
A)how far in-the-money put options can be.
B)how far in-the-money call options can be.
C)the precise relationship between put and call prices given equal exercise prices and equal expiration dates.
D)that the value of a call option is always twice that of a put given equal exercise prices and equal expiration dates.
E)that the value of a call option is always half that of a put given equal exercise prices and equal expiration dates.

Question

Quizplus · Accepted Answer

Put-call parity is a concept that suggests that, under certain conditions, the price of a European call option and a European put option with the same strike price, underlying asset, and expiration date should be related. This parity relationship can be written as C + PV(K) = P + S0, where C is the price of the call option, PV(K) is the present value of the strike price, P is the price of the put option, and S0 is the current price of the underlying asset. Therefore, option traders and investors can use put-call parity to determine the fair value of either the call or the put option if they know the price of the other option and other relevant market variables. Thus, put-call parity is generally used to explain how the prices of call and put options are related to one another.

Put-Call Parity Can Be Used to Show