Put-Call Parity

“Put-call parity is a theoretical relation between call option prices, put option prices, and stock prices that should hold because a portfolio of put and call options plus risk-free bonds can be constructed to replicate the payoff from purchasing the underlying stock.”  In re Countrywide Fin. Cor. Securities Litig., 273 F.R.D. 586 (C.D. Cal. 2009).

“A ‘put’ is the right to sell a security at a certain price (the ‘strike rice’) by a certain date (the ‘expiration date’).  A ‘call’ is the right to buy a security at a certain price by a certain date. Put-callparity is where Price of Call Option + Strike Price on Option = Price of Put Option + Current Price of Stock.”  Smilovits v. First Solar, Inc., 295 F.R.D. 423 (D. Ariz. 2013).