Put-CallParity - Finding the Price for Options We can find...

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1 Finding the Price for Options We can find the price for something easily Determine the price for a close (identical) substitute Price for a red car? Nearly the same as price for a blue car.
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2 “Creating a Stock” with Options The profit/loss diagram for a short put plus a long call Short Put Long Call + = Looks like long stock
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3 “Creating a Stock” with Options Difference Between Buying Stock and Buying a Call and Selling a Put You need more cash up front to buy the stock. The Stock position never expires. The option position will eventually expire.
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4 Can create a short position in the “artificial stock” long put and a short call Short call Long put Looks like short stock + =
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5 Buy the stock and short the “artificial stock”=Riskless A riskless position results if you combine the stock with a long put and a short call Short call + Long put Long stock Riskless position + =
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6 Covered Call and Long Put Riskless investments should earn the
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Put-CallParity - Finding the Price for Options We can find...

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