Put call-Parity

Dear All:

According the formular (c + PV(x) = p + s ), I am still confused about this relationship, Call option plus the present value of bond equal to the put option value plus the stock price. how can it be equal and what is the benefit of this formular for the investor?

Thank you so much for your time

if you own some of these components , you can construct synthetic options . I think the formula itself is L2 , isn’t it?

it represnts arbitrage oppurtunity if not in equilibrium

  • The stock is the underlying security of the put and the call;
  • The bond is a risk free bond(like US Treasury).
  • The options are European options.

The benefit to market maker: find an arbitrage opportunity and lock in the profit quickly. The benefit to avg investor(like me): Put Call Parity won’t make me rich, but it will make me pass CFA exams.