option question seem incorrect

[Anonymous]

This question seems wrong. first of all, a & b are the same. the answer c. is incorrect. It has buying a call and Buying a put which would be a straddle. if we subtract “Buying a Put” from the left side, we are still Buying a put with a minus sign. either this does not make sense or incorrect. – buying a put does not mean to sell

please advise.

(a)
Buying a call – Selling a put = Buying the stock + Bank deposit
(b)
Buying a call – Selling a put = Buying the stock + Bank deposit
(c)
Buying a call + Bank Deposit = Buying the stock – Buying a put
(d)
Buying a call + Bank Deposit = Buying the stock + Buying a put

Your Answer is Incorrect

The correct answer is choice ‘d’

The put-call parity can be expressed as:
Value of call – Value of put = Spot price – Exercise price discounted to the present

Therefore only Choice ‘d’ is the correct answer as rearranging the above gives us Buying a call + Bank Deposit = Buying the stock + Buying a put.

Choice ‘d’ is therefore the correct answer.

[Mukul Pareek]

Thanks very much for the observation. As I re-read the question and the answer, it is clearly confusing, in particular the double negative implied by a minus sign placed in front of a sell position.

I have changed the choices available, taken out the minus signs and made it easier to focus on just the put-call parity that question is trying to clarify.

Also – another thing that might help in getting a conceptual understanding of the put-call parity is the article here: https://riskprep.com/all-tutorials/35-exam-13/53-introduction-to-vanilla-options

Mukul Pareek

[Author]

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