PutCall Parity Calculator
We have prepared this putcall parity calculator for you to understand the relationship between a call and put option. It will also help you to understand how options are valued according to the noarbitrage rule.
Accompanying this calculator, we have also written this article to help you understand what is putcall parity and how to calculate it using the putcall parity formula. We will also describe the concept in more detail by demonstrating some examples of applying this relationship.
What is the putcall parity?
Simply put, the putcall parity assumes that investors should be indifferent between going long on a call contract and holding a forward contract with the same striking price and expiration date, and a protective put, equivalent to buying a stock and longing a European put option simultaneously.
The putcall parity equation states that if one of the asset prices deviates from the relationship, an arbitrage opportunity will exist. This allows traders to exploit the opportunity by buying the underpriced asset and selling the overpriced asset.
We will explain this relationship in detail by calculating the putcall parity in the following example.
How to calculate putcall parity?
Putcall parity is as much of an equation as a relationship. Hence, the easiest way to understand the putcall parity calculation is to understand what the relationship means in different forms.
The putcall parity equation can be displayed as follows:
C + PV(x) = P + S
where:
C
– Price of a European call option of strike pricex
;PV(x)
– Present value of the strike price of the options, discounted to the present date using the riskfree rate;P
– Price of a European put option of strike pricex
; andS
– Spot price of the underlying asset.
Before we demonstrate the putcall parity example, let's look at a short example of how to calculate the PV(x)
. This can be calculated using the formula below:
PV(x) = strike price / ((1 + riskfree rate)^{(years to expiry)})
So, if the strike price
is $12
, the years to expiry
is 2
years and the riskfree rate
is 3%
, the PV(x)
will equal to 12 / (1.03)² = $11.31
.
Now, we can calculate the price of 4 financial instruments using the putcall parity formula:
 Calculate the price of a European call option.
This can be achieved by using the equation as follow:
C = P + S  PV(x)
By looking at the equation, we can tell that this relationship assumes that
C
is equal to the value of a protective put (P + S
) with a short position inPV(x)
.
 Calculate the present value of the strike price.
The equation for this calculation is:
PV(x) = P + S  C
Hence, the present value of the strike price is assumed to be the combined value of a protective put and shorting a European call option.
 Calculate the price of a European put option.
This can be achieved by using the equation as follow:
P = C + PV(x)  S
This implies that the value of a European put option is equivalent to a long position in a European call option, a long position in the present value of the strike price, and a shorting the underlying asset.
 Calculate the price of the underlying asset.
This relationship also allows you to value the underlying asset, with the equation:
S = C + PV(x)  P
This means that the price of the underlying asset is equivalent to a long position in a European call option, a long position in the present value of the strike price, and a shorting a European put option with strike price
x
.
In the advanced mode
of our putcall parity calculator, you can change the years to expiry and riskfree values.
Limitations of the putcall parity
Now, let's talk about some of the limitations of the putcall parity formula.

Firstly, this equation only applied to European options but not American options. The European options only allow the buyers to execute their right to buy or sell the asset at the predetermined exercise date. On the other hand, investors can execute their right to buy or sell an asset at any time before the exercise date when investing in an American option.

The putcall parity equation only holds when there are no market frictions. We define market frictions as implicit costs that are incurred when a trade is executed. The most common ones being taxes, brokers' commissions, and bidask spread.
FAQ
Does the putcall parity apply to all options?
No, the putcall parity only applies to the European options, but not the American options. The European option can only be exercised on a predetermined date, whereas American options can be exercised at any date before a predetermined date.
What is an abitrage?
Arbitrage is a trading strategy that focuses on earning profit by simultaneously buying and selling assets. This strategy revolves around exploiting shortterm mispricing in different assets.
What are market frictions?
Market frictions are the implicit costs involved in executing a trade. These costs are normally not obvious when a trade is executed. Some examples are taxes, brokerage costs, bidask spread, etc.
What is an option?
An option is an agreement between two parties that gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price at or before the exercise date. The buyer of the option has to pay a premium to the writer of the option.