FRM: Put call parity

Put call parity derives from the idea we can have two portfolios (one with an option, the other with a put) that have identical payoffs regardless of what happens to the stock. This gives a way to link the value of a call option with a put option. For more financial risk videos, visit our website at www.bionicturtl...!

[@dharmishaaaa]

Probably the best explanation of put-call parity, after a whole few days of scratching my head whilst reading through my lectures, I know get this, bring on my exam on the 24th!

[@kingrac7864]

Great explanation!! i'm sitting here with a pile of lecture notes trying to understand this for the last couple of hours but your video did the job in 6 mins :)

[@khazaddim]

Best put-call parity video on the interwebs. Hands down.

[@Yatin.ranade]

this is the most amazing explanation of Put cal parity ever :)

[@bionicturtle]

@ap8415 that's right that (c) is the price/value of a European style call option. But, also, in put-call parity is just reflects "long one call option" such that, under any future asset price scenario, the future payoff of [long call plus discounted cash/strike] is equal to protective put [long stock plus long put option]. So the illustration of the strategy payoffs illustrates (validates) the put-call parity

[@Amol8874]

The concept has been explained in very simple steps.... grt job...

[@bionicturtle]

Thank you, love to hear that!

[@syndddd]

Omg so helpful! I finally understand the concept. Thank you so much!

[@shan519x]

Fabulous Mann..... u saved me from exams....

[@kexinfeng9503]

you saved my life!!!!! burst into tears!!!

[@TheCasanova2012]

omg~ you save my life i have finace exam in 4 days i've been trying to get idea how this work by reading and doing some exam question relate to this but can't get clear view.. but now i am so THANK YOU SO MUCH TOU ARE HERO.

[@icebeating]

He took the call option which mean he had to buy to the bond, assuming that the buyer doesn't have money now ==> he have to borrow to long the call option.

[@bionicturtle]

@oligiscool1 yes, agreed, thank you for making the point: this applies to a non-dividend stock

[@bionicturtle]

@ap8415 put another way, put-call parity (necessarily) works BOTH for future payoff scenarios (as i illustrate here) AND, to your point, in a present value valuation: S(0)+p = c + K*exp(-rT)

[@perethakanjorn6317]

amazing! thank youu

[@bionicturtle]

@TheCasanova2012 Thanks, I'm thrilled to help.

[@bionicturtle]

@chadobomber that is the nicest thing anybody said to me today. Thank you so much!

[@Thatbigx]

Thank you so much! This is a really good explanation compared to my lecture slide with just the formula :)

[@Sabsterjoon]

stellar exposition!!

[@phillipnguyen5428]

really really appreciate this video, you saved my day!

[@kidbornbrat1812]

quite pleasing...thancs

[@aby007]

Thank you so much.

[@whoosh000]

I understand the call, put, and stock variables in the equation, but how does the bond come in?? Why does put-call parity have anything to do with bonds? Great videos!

[@QuaQuoHD]

Hi David. The video would be much more useful if you'd explain the parity in more general way using forward instead of spot with options and futures expiring at different times, and with dividends as well.

[@guptaBL]

thank you for making this video!

[@bionicturtle]

@dharmishaaaa thank you, i really appreciate that!

[@mikemakardi]

I think he made a mistake saying that you borrow money to exercise in the future - bond. We lend money today to have the the future value. He should have said we lend money.

[@kochpat478]

thanks mate! Very helpful!!

[@bionicturtle]

Fantastic, love to help!

[@hassan18786]

(a) Outline the concept of put-call parity. Explain how arbitrage will ensure that put-call parity will hold. (40%) (b) Explain (with an example) why put-call parity may not hold. (30%) How would you answer the above questions?

[@paturro]

Very helpfull, thanks a lot...

[@TheSchola3000]

ok but the chances of being able to use a call options and put options with the same stock is a small percent chance isnt it?

[@pankajrajput7]

Great Job! keep it up...

[@alir6161]

nailed it man. Great job!!

[@shichaofan2665]

so useful, tks a lot

[@aperson4340]

i had an interview at GS wished i'd watched this a week ago...... :'(

[@bmwman5]

Does this same equation hold true for American style options too?

[@JohnSmith-pe9di]

The only thing I don't get about this parity is that there's a difference in the purchase price of the bond and the stock. Let's say the stock does not move in price If you buy the bond, you'll get it a discount (9.50) and earn interest. If you buy the stock, you'll have to pay transaction costs. So if it doesn't move, you're out the transaction out. So they're not equal!

[@SelviaResearch]

theres transaction costs for buying bonds too.

[@nxenie]

why do you need the bond?

[@mjaparidze]

thank you

[@bionicturtle]

You're welcome! Thank you for watching! :)

[@MsExploits]

Very helpful!!!!. :)

[@yotaxu]

memorize all the terminology, then yours help a lot.

[@chadobomber]

Scweser Level II has nothing on you, nice explanation

[@MyMrwrestling]

come to the uk and teach the teachers at manchester uni suck

[@pepino1307]

Please come to Wiena...to teach us mu profesors are big 0 for you