Put-call parity arbitrage I | Finance & Capital Markets | Khan Academy

[@TheAverageJoeee]

Wow you explained this concept better in 3 minutes than my Harvard PhD professor could in 2 days. Thanks Sal!

[@truthhurts5111]

Stock/Option Arbitrage....AT expiration day near closing....Sell the stock at current price. Your option buying power increases. Then sell an in the money PUT for the same amount of shares you sold. There is a difference in PRICE between the stock price and the PUT option. The PUT price tends to be lower than the STOCK price. Thus, you buy the stock back at a lower price and pocket the difference. Very low risk on a stock that is not moving much or sideways.

[@imahumanin21century]

Well explain. For those people who feel confused by what this video saying, I want to say, you cannot just rely on these short video clips to have a full understanding on stock option concepts. These video clips should be viewed as the supplemental learning resource. If anyone wants to have a well understand in finance, then s/he must to take classes and read a lot of textbooks, rather than just watch some video clips on KZbin.

[@dynamicfoe1]

@MultiCheeseGrater I told agree with you. Some of his new videos on arbitrage, economics, and financials are really short. Those topics are difficult to understand so it needs more time and in depth explanations. These short videos only makes it more confusing.

[@terrymatic]

your lessons are great. Can you put them in an order so that we know where a seggment begins. I keep getting the lessons in the middle

[@SaRisusSardonicus]

Thank you! This really helped me in my assignment.

[@danielowens4013]

I understand the concept but my problem is in practicality, why would you ever do this when you could just buy the risk free bond and hold until expiration and make that same $5?

[@madass888]

When you buy the bond to make $5, you need to have $30 first. In an arbitrage opportunity, you can make money without needing money (or maybe a little bit to cover some initial fees). In this example you get $43 dollars by selling a borrowed stock and selling a put option. You then use part of that money to buy the bond and call option for $38, which fully hedges your short and put. So $5 risk free without needing any money in the first place.

[@poiuwnwang7109]

@@madass888 super!

[@harshpanchal1341]

In the reverse case how would u go short on the bond

[@neuvocastezero1838]

I understand the put, the call, and the stock, but how do you trade a bond for a company? Is another type of account required, like Forex?

[@ruhakana]

Don't worry about the trading of the bond. The point of the bond is to get a risk free interest rate so you can find the present value of the strike price.

[@triforcelink]

i love these number games, how do people come up with this stuff??

[@AEKs22]

You da GOAT Khan!

[@sanguinor5609]

Frantically watching this 30 minutes before my exam kek

[@cabhumilavti2434]

Thank you very much

[@TheJigaaboo]

I do not quite understand why you are using the Bond price on the right-hand side of the equation? I agree with the left-hand side, but expected the right-hand size to be C(s) + X (strike price)

[@HarleyMousseau]

Thanks for the breakdown! 🤔 Just a small off-topic question: 😅 I have these words 🤨. (behave today finger ski upon boy assault summer exhaust beauty stereo over). Not sure how to use them, would appreciate help. 🙏

[@bucketsniper5488]

Is borrowing and selling stock even a possibility?

[@VickiBee]

This is how Rob talks on the phone to people. I have no clue what he's saying. I hope the people he's talking to know. I always feel like I just landed on an alien planet when I listen to him talk about his work.

[@kennyparlee]

what if this is with an asset class like bitcoin or gold? what would you fill in for the bond price??

[@JF098]

Put-call parity is easy, but I just can't wrap my head around what to do if there's no bond option. If your only options are to short/buy the stock or buy/sell a put or a call.

[@lucasmartin4883]

perhaps an inverse tracker of the stock if it's an etf or some other security which has an inverse

[@minymaker]

It’s hard to imagine a case where you can’t invest in a bond. This case be any bond, treasury or high quality corporate bonds. I also think this part of the equation can be replaced with any instrument that gives a risk free return and matures at the expiration date

[@jayyeung7834]

what if there is no information on bond? (only stock, put an call info is given)

[@erakor9]

This is good but as a retail trader can this technique even be implemented considering all of the commissions one has to pay?

[@stephano1990]

Probably not, arbitrage traders these days generally use supercomputers to make their trades that happen within a split-second!

[@sunnykataria23]

could you please explain where did the bond come from , you said it is not related to the stock , how is this completely hedged ? in real life if i want to execute such an arbitrage , what bonds am i looking at ?

[@aymanecheikh9230]

You're looking at any bonds that give an interest that is higher than the cost/strike price of the option. For example, if the cost of the option and difference between current price and strike price means that you will lose 2% if you are wrong, then you buy any bond or note that provides 2% yield or more, so that you're losses from the option are hedged by the bond, which is the safer investment. It's basically diversification :)

[@stevrgrs]

And what happens with interest rates are changed on the bond?

[@fones13]

YOU THE GOAT

[@vaishnavikarthikeyan1015]

Thank you thank you thank you

[@danavillemarette]

Thanks for the analysis! I need some advice: My OKX wallet holds some USDT, and I have the seed phrase. (air carpet target dish off jeans toilet sweet piano spoil fruit essay). How can I transfer them to Binance?

[@kby39]

you are my God

[@scalbylasusjim2780]

So basically put-call parity exists so that people can't just finance other investments simply by selling unlimited options?

[@Abdolreza.Sadreddini]

Do you know if this Argitrage system works now? any Update Please?

[@whatwherethere]

Totally not getting this arbitrage. 1. I short the stock, One month from now I need to buy a stock to replace it. OK, I bought a call so that covers the high side, I will only have to spend $35. Then I sold a put, so if it goes to zero I have to eat $35. However on the Put and the Short, I made $43 and spend $8 on the call. I have 35 dollars in my pocket after spending $8. I am now leveraged $25 dollars. The bond is irrelevant, I am now seeking any interest bearing device that will pay on my leveraged $35 dollar position vice my original $8 position. The "safety" of the bond is always reflected in the interest rate. 2% interest on $8 is like 8.75% interest with the leveraged position of $35. Repeat till you saturate one of the markets. What am I missing? Sometimes these basic examples are too basic for me to get the point.

[@whatwherethere]

Sorry, made a mistake. My original position was $0 all the funds come from the upfront sales and my credit rating or my dads credit rating if I have a Trust.

[@MikeKleinsteuber]

In the real world however, how often would this happen ? Also, you need to take fees into account too....

[@julianvescia4673]

the securities are unrelated, so it's not really uncommon.

[@starwarsjunkie7776]

This guy explains my Friday 0 DTE TSLA options arbitrage perfectly...I sell the more expensive side as a credit spread 30 min before close and have a huge success rate with it on my backtesting.

[@jonathanjaratassara5558]

In a credit spread there is losing side, so, is not arbitrage, so, how r u stablishing those?

[@hengbinzhang3155]

how does the put & call option be valued at $12& $8? if current stock price is $31 and option strike is $35, shouldn't them be $4 and $0 ?

[@chrisw905]

Hengbin Zhang If you exercised the options right now the put would be worth $4 and the call would be worth $0, but the thing about options is that you have the option to do that thing until the end of the time frame, so its worth more.

[@45golly]

+Hengbin Zhang 4 and 0 is the intrinsic value. The rest in 12 and 8 is the time value

[@lonneke9158]

Hi Sal, what is the Bond worth price? And where can you find it. Love, from the Netherlands

[@silspieard7417]

Lonneke jij enig idee waarom je gewoon een bond zou kopen, aangezien die risicovrij is en ook 5 euro winst biedt?

[@astrittollovina5807]

Ok now let’s get back to the real world! If the stock moves $5 lower the stock short, short put and long call cancel each other out. What’s left is the bond. You could have purchased the bond on its own, how does the bond even fit in the equation ? Lol

[@MultiCheeseGrater]

honestly you explained the put call arbitrage videos really poorly i am confused. Also why did you shorten the length of them the longer ones are better cus you have more time to explain :(

[@zenapsgas]

Does this really happen irl?

[@shazamocean]

@triforcelink college

[@harshpanchal1341]

What’s the point of this U would have made $5 risk free profit on the bond anyways

[@sannyj80]

nothing new in the video :)

[@DavidDawkins-l7i]

learn to make good videos