It stands for put-call-futures parity; the relationship between the prices of calls (call options), puts (put options), and futures (futures contracts) on the same underlying asset. If the parity is violated, traders could earn an arbitrage profit. The parity relations for same month and same strike futures and options vary according to trading strategies. For example, the following parity relations are usually used by traders:
Long call = long put and long futures
Short call = short put and short futures
Long put = long call and short futures
Short put = short call and long futures
With a few assumptions, futures can be replaced by forwards (the so-called forward parity or call-put-forward parity would result).
It is also known as put-call-futures or call-put-futures parity (call-put-futures).
For more, see: futures parity relations.
Comments