Use a simplified put-call parity relationship to spot inconsistent option prices.
Stock is $49. A $50 call costs $1 and a $50 put costs $2 with the same expiration. Ignore interest, dividends, and transaction costs for the teaching example. Put-call parity is a no-arbitrage relationship among stock, calls, puts, and cash when strike and expiration match. The common shortcut is to compare call premium and put premium alone. Parity requires the underlying stock, strike, expiration, and financing assumptions. Step 1 Match the contracts: same underlying, same $50 strike, same expiration. Without matching strike and expiration, the parity relationship does not apply cleanly. Step 2 Read the synthetic: long call plus short…
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