346 Derivatives and Risk Management
Put–call parity is a theoretical relationship, and it provides a theoretical value for a put for a given
value of a call. However, using put–call parity for arbitrage requires that the market prices of the put and
the call also follow the put–call parity. e market price of either a call or a put is based on the demand
and supply in the market. If many traders in the market are bullish about the market, it is quite likely that
the demand for calls will be high, and at the same time, the demand for puts will be low. is may cause
the puts to be priced at a level lower than what the put–call parity would suggest. Similarly, if traders are
bearish about the market, the demand for puts will be high and the ...