put/call parity

put/call parity
The term used to describe the relationship between option and futures prices. By definition the prices of options and futures on the same underlying product must be linked due to the ability to synthetically create futures positions with the use of options. The relationship can be defined mathematically. For options on futures, the sum of the call and put option prices must be equal to the futures price less the exercise price of the option. For options on physicals, this formula is amended slightly so that the sum of the call and put option prices is equal to the physical price of the options discounted back to today's values. Dresdner Kleinwort Wasserstein financial glossary

Financial and business terms. 2012.

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