Put-Call Parity Relationships

Put-Call parity is a fundamental principle that defines the relationship between the price of European put and call options with the same strike and expiration. It states that a portfolio of a long call and a short put is equivalent to a long position in the underlying asset.

This relationship is enforced by arbitrageurs who profit if the parity is violated. In digital asset markets, deviations from parity can signal market inefficiencies or high borrowing costs.

Traders use this to identify mispriced options or to construct synthetic positions. It is a pillar of options theory.

Understanding parity helps in grasping how different derivative instruments are linked.