Why are the solutions for put and call options different?

A Call Option gives the buyer the right, but not the obligation to buy the underlying security at the exercise price, at or within a specified time. A Put Option gives the buyer the right, but not the obligation to sell the underlying security at the exercise price, at or within a specified time.

Do Puts and Calls offset each other?

If you sold a call, you have to buy a call with the same strike price and expiration. If you sold a put you have to buy a put with the same strike price and expiration. If you do not offset your position, then you have not officially exited the trade.

Does put call parity always hold?

Put-call parity allows you to calculate the approximate value of a put or a call relative to its other components. If the put-call parity is violated, meaning that the prices of the put and call options diverge so that this relationship does not hold, an arbitrage opportunity exists.

What causes a put option prices to change?

Options traders must deal with three shifting parameters that affect the price: the price of the underlying security, time, and volatility. Changes in any or all of these variables affect the option’s value. There are mathematical formulas designed to compute the fair value of an option.

How do you remember the difference between a call and a put option?

You CALL someone UP and then when you are done with the conversation you PUT the phone DOWN. Therefore: You buy a call option if you think the asset (i.e., stock) is going up. You buy a put option if you think the asset is going down.

Why are calls more expensive than puts?

The reason that calls trade higher than puts is due to the cost of carry for the stock. If you had to buy the stock, your money would tied up in the stock and not in the bank earning interest. That interest component must be added to the call price.

What are mispriced options?

In today’s article we shall talk about the beauty of trading mispriced options. Every time the price of the option rises above or falls below the fair value, they consider it mispriced. Most of these models consider 6 common factors that are responsible in the formation of an option price.