Schweser says a long interest rate call combined with a short interest rate put can have the same payoff as a long position in a FRA. Why is that? I tried drawing the option diagram and I still don’t get it.
well the option trader would say: if at the same strike, will net off on all greeks, except leaving you net +ve delta. in simpler english, if spot ends up above strike, you exercise the call and end up with the underlying - but the put will not be exercised. but if spot ends up below strike, the guy you sold the put to will give u the underlying at the strike price, but you will not exercise the call.