Option Call and Option Put Call and Put Option- Put option or put call parity trick.

Option Call and Option Put Call and Put Option- Put option or put call parity trick.

Options Trading Basics: Call & Put Options

Options trading involves Call Options and Put Options, which allow traders to bet on the rise or fall of an asset.

1. What is a Call Option?

A Call Option gives the buyer the right (but not the obligation) to buy an asset at a fixed price before expiry.

• Bullish View – You buy a Call when you expect the price to rise.
• Profit Formula = (Market Price – Strike Price – Premium Paid)
• Risk – Limited to the premium paid.
• Unlimited Profit Potential

Example:

• Stock: Reliance (₹2500)
• Buy Call Option (₹2600 Strike) at ₹20
• If Reliance goes to ₹2700, your profit = ₹80 per share

2. What is a Put Option?

A Put Option gives the buyer the right to sell an asset at a fixed price before expiry.

• Bearish View – You buy a Put when you expect the price to fall.
• Profit Formula = (Strike Price – Market Price – Premium Paid)
• Risk – Limited to the premium paid.
• Unlimited Profit if Price Falls Sharply

Example:

• Stock: TCS (₹3400)
• Buy Put Option (₹3300 Strike) at ₹30
• If TCS falls to ₹3200, your profit = ₹70 per share

3. Put-Call Parity (Trick for Understanding Relationship)

Put-Call Parity is a concept that helps in arbitrage trading and pricing options correctly.

Formula:
Call Price – Put Price = Spot Price – Strike Price + Risk-Free Interest

OR

Call Option + Cash = Put Option + Stock

This means:

• If Call is expensive, Put is cheap → Buy Put, Sell Call.
• If Put is expensive, Call is cheap → Buy Call, Sell Put.

Put-Call Parity Arbitrage Trick:

• If an option misprices, traders use this formula to make risk-free profits.
• Works best in low volatility markets.

4. Simple Trick to Trade Using Put-Call Parity

If Call is expensive → Sell Call & Buy Put of the same strike.
If Put is expensive → Sell Put & Buy Call of the same strike.

This helps in identifying mispriced options and making quick profits using arbitrage strategies.

Would you like me to show a live example or practical strategy based on the current market?

Here’s a clear breakdown of Call Option, Put Option, and the Put-Call Parity Trick, simplified for easy understanding:

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📈 1. What is a Call Option?

A Call Option gives the buyer the right (but not the obligation) to buy an asset (e.g., stock) at a fixed price (called the strike price) before a certain date.

🔹 You buy a Call when:

You think the price will go up.

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📉 2. What is a Put Option?

A Put Option gives the buyer the right (but not the obligation) to sell an asset at a fixed strike price before a certain date.

🔹 You buy a Put when:

You think the price will go down.

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🔁 3. Put-Call Parity – Formula & Trick

Put-Call Parity connects the price of calls and puts on the same stock, with the same strike and expiry.

💡 Formula:

Call Price−Put Price=Spot Price−Strike Price×e−rT\text{Call Price} – \text{Put Price} = \text{Spot Price} – \text{Strike Price} \times e^{-rT}Call Price−Put Price=Spot Price−Strike Price×e−rT

💡 Simplified Trick (for no-arbitrage condition):

If you hold:

• 1 Long Call

• 1 Short Put
  You replicate a Forward Contract (same payoff).

OR

$$\text{Call}+\text{PV of Strike}=\text{Put}+\text{Spot}$$

Where:

• PV = Present Value

• r = Risk-free rate

• T = Time to maturity

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🧠 Easy Memory Trick:

“Call + Bond = Put + Stock”

This means:

• If you buy a Call and a bond (which pays the strike), it gives the same return as buying a Put and the stock.

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📊 Use in Trading:

Put-Call Parity helps you:

• Spot arbitrage opportunities

• Check if options are overpriced or underpriced

• Build synthetic positions (e.g., synthetic long stock)

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Let me know if you’d like a payoff diagram, real-life example with numbers, or a visual cheat sheet to memorize these quickly.

Option Call and Option Put Call and Put Option- Put option or put call parity trick.

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