The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we are going to discuss put/call parity and we’re finally going to explain it for you guys hopefully here very quickly. The idea behind put/call parity mainly resides with European-style option contracts. This is opposed to American-style option contracts which really don't ever reach put/call parity because they have the ability to be exercised ahead of expiration. But European-style options are only exercised at expiration, so you can find instances where the put/call parity actually exists in the contracts. Now, what happens is that in I guess, very simple terms, when you reach put/call parity, it's basically the point at which the option contracts that you’re trading are trading almost identical or identical to the underlying asset. What you typically see with an option contract say that has a Delta of 80, that means that the option contract is going to perform like 80 shares of stock. It’s not going to be l