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Agreed. One of the reasons is that the option has a risk and therefore there's a cost associated with managing that risk and taking on the trade.
by egwor 6y ago
Agreed. One of the reasons is that the option has a risk and therefore there's a cost associated with managing that risk and taking on the trade.
- eru 6y agoNot quite. It's the 'risk-free bond' term that I dropped from my explanation of the put call parity. To replicate the stock, you'd buy the call and sell the put. The risk exactly balances out in the sense that a total portfolio of 1 stock short, 1 call long and 1 put short would have zero risk and behave like a risk-free bond. (If the risk premia of the long call and the short put would not exactly balance, you could make money with very simple arbitrage trades.)