February 28, 2019

# What Is Put-Call Parity?

Put-call parity is a principle that defines the relationship between the price of European put options and European call options of the same class, that is, with the same underlying asset, strike price, and expiration date. Put-call parity states that simultaneously holding a short put and long call of the same class will deliver the same return as holding one contract on the same underlying asset, with the same expiration, and a forward price equal to the option’s strike price. If the prices of the put and call options diverge so that this relationship does not hold, an arbitrage opportunity exists, meaning that sophisticated traders can theoretically earn a risk-free profit. Such opportunities are uncommon and short-lived in liquid markets.

The equation expressing put-call parity is:

C + Strike = P + Stock Price

where:

C = price of the call option

Strike Price = the present value of the strike price (x), discounted from the value on the expiration date at the risk-free rate

P = price of the put

S = The current market value of the underlying asset

## Mike Shorr

Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProsperTradingAcademy.

May 8, 2024

## What Is Delta In Options Trading?

Understanding the Delta of an option is crucial for both new and seasoned traders. It’s one of five specific calculations called “Greeks,” which help measure specific factors that could influence the price of an options contract. Delta is a metric that helps you gauge how much the value of an option contract is expected to […]

March 28, 2024

## What is Rho in Options Trading? (Option Greeks Explained)

Rho is the rate at which the price of a derivative changes relative to a change in the risk-free rate of interest. Rho measures the sensitivity of an option or options portfolio to a change in interest rate. Rho may also refer to the aggregated risk exposure to interest rate changes that exist for a book of several options positions. For example, […]

March 25, 2024

## You Have A Lot Of Options Out There

There are a number of different types of options expiration types.  In the vast majority of our signals, our options will be categorized as “American”-style options.  There are some, like VIX options, that are “European”-style options.  Here’s a quick explanation of both. The term “American style” in relation to options has nothing to do with […]

May 8, 2024

## What Is Delta In Options Trading?

Understanding the Delta of an option is crucial for both new and seasoned traders. It’s one of five specific calculations called “Greeks,” which help measure specific factors that could influence the price of an options contract. Delta is a metric that helps you gauge how much the value of an option contract is expected to […]

March 28, 2024

## What is Rho in Options Trading? (Option Greeks Explained)

Rho is the rate at which the price of a derivative changes relative to a change in the risk-free rate of interest. Rho measures the sensitivity of an option or options portfolio to a change in interest rate. Rho may also refer to the aggregated risk exposure to interest rate changes that exist for a book of several options positions. For example, […]