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Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits, 2nd Edition by Dan Passarelli

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CHAPTER 6

Put-Call Parity and Synthetics

In order to understand more complex spread strategies involving two or more options, it is essential to understand the arbitrage relationship of the put-call pair. Puts and calls of the same month and strike on the same underlying have prices that are defined in a mathematical relationship. They also have distinctly related vegas, gammas, thetas, and deltas. This chapter will show how the metrics of these options are interrelated. It will also explore synthetics and the idea that by adding stock to a position, a trader may trade with indifference either a call or a put to the same effect.

Put-Call Parity Essentials

Before the creation of the Black-Scholes model, option pricing was hardly an exact science. ...

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