Can someone please explain me what is put call parity, in simple language.

It’s a formula that relates the price of a call option, the price of a put option, the price of the underlying stock, and the present value of the strike price (which is the same for the call as for the put).

It’s based on the idea that two portfolios which will have the same payoff under all circumstances must have the same value (price) today, lest there be an arbitrage opportunity.

The two portfolios in put-call parity are a protective put (a long position in the underlying stock and long position in a put option) and a fiduciary call (a long position in a call option and a long position in a risk-free, zero coupon bond).

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