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