Put-Call Parity
A pricing relationship that must exist between a European put and call with the same strike and expiration.
Explanation
The formula is: Call - Put = Stock - Strike x e^(-rT). If this relationship is violated, arbitrage opportunities exist. Put-call parity ensures that synthetic positions (e.g., synthetic long stock = long call + short put) are priced consistently with the actual underlying.
Example
If AAPL is at $150, the 150 call is $5, and the risk-free rate is near zero, put-call parity says the 150 put should be approximately $5 as well.