Put-call parity demonstrates the relationship between shorts, puts, calls, and bonds. The proper combination of each can yield equal payouts. This relationship is valuable for investors, who can identify when the put-call parity is out of sync, taking advantage of arbitrageopportunities. Salman Khan of the Khan Academy explains.
From this video, you’ll understand:
- How put-call parity should work under normal conditions
- How payoffs should look for both sides of the put-call parity equation