Illustrates example of bid/offer on call in put–call parity
Illustrates an example of bid/offer on a call in put–call parity?
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For illustration, assume that the bid/offer on a call is 22/25 percent in implied volatility terms and which on a put (same strike and expiration) is 21%/23%. There is an over- lap between these two ranges (22–23 percent) and so no arbitrage opportunity. Though, if the put prices were 19percent/21percent then there would be a violation of put–call parity and therefore an easy arbitrage opportunity. Don’t wait for to get many (or, any, indeed) of that simple free-money opportunities in practice although. If you do get such an arbitrage then this usually disappears with the time you put the trade on.
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