Put-call parity
The strict relationship between the prices of a call and a put sharing one strike and one expiry.
Formula
C and P are the call and put premiums, S the price of the asset, K the strike, r the rate and t the time to expiry. The relationship is written for European options.
How to read the number
It follows that a call, a put, the underlying and cash are four ways of assembling the same position, and the price of any one of them follows from the other three.
When the metric lies
Also known as: parity relationship