Spot-Option Parity

Spot-option parity, or put-call parity, is a fundamental relationship between the prices of European call and put options and the underlying spot asset. It dictates that the difference between the price of a call and a put with the same strike and expiration should equal the spot price minus the discounted strike price.

If this relationship is violated, arbitrage opportunities emerge, allowing traders to lock in risk-free profits. In cryptocurrency, market inefficiencies can sometimes cause temporary deviations from this parity.

Understanding this principle is crucial for identifying mispriced assets and executing arbitrage strategies across different exchanges. It serves as a bedrock for the theoretical pricing of all derivative instruments.

It ensures internal consistency within the options market.