GO
Loading...

Put-Call Parity Arbitrage: CNBC Explains

CNBC Explains
Thursday, 16 Jun 2011 | 8:06 AM ET
Put-Call Parity Arbitrage (Part I): CNBC Explains
In previous videos, we've seen that when put-call parity is broken, risk-free arbitrage opportunities may exist. Salman Khan of the Khan Academy explains how this opportunity works, and how to execute it.
Put-Call Parity Arbitrage (Part II): CNBC Explains
In previous videos, we've seen that when put-call parity is broken, risk-free arbitrage opportunities may exist. Salman Khan of the Khan Academy explains how this opportunity works, as well as how to execute it.

In previous videos, we’ve seen that when put-call parity is broken, risk-free arbitrage opportunities may exist. In short, buying a stock and a put option should have the same value as a call and a bond at the same expiration date. When this relationship is out of balance, price discrepancies reveal an easy way to make money. Salman Khan of theKhan Academy explains how this opportunity works, and how to execute it.

From this first video, you’ll understand:

  • The rationale behind exploiting put-call parity arbitrage
  • How to take advantage of discrepancies in put-call parity

From the second video, you'll understand:

  • How the put-call equation balances out
  • The put-call parity relationship in depth



Featured

Contact CNBC Explains

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Latest Special Reports

  • The day you stop working will be here before you know it, making preparation now key to enjoying your golden years.

  • Is an active twist on passive investing the right portfolio move? An inside look at the rise of ETF strategists.

  • Simplifying news on the clock.

Central Banking Explained

Corporate Accounting Explained