O'Reilly logo

The Intelligent Option Investor: Applying Value Investing to the World of Options by Erik Kobayashi-Solomon

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Appendix C

PUT-CALL PARITY

Before the Black-Scholes-Merton model (BSM), there was no way to directly calculate the value of an option, but there was a way to triangulate put and call prices as long as one had three pieces of data:

        1. The stock’s price

        2. The risk-free rate

        3. The price of a call option to figure the fair price of the put, and vice versa

In other words, if you know the price of either the put or a call, as long as you know the stock price and the risk-free rate, you can work out the price of the other option. These four prices are all related by a specific rule termed put-call parity.

Put-call parity is only applicable to European options, so it is not terribly important to stock option investors most of ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required