Our goal in this chapter is to discuss stock option prices. We will look at the fundamental relationship between call and put option prices and stock prices. Then we will discuss the Black-Scholes-Merton option pricing model.
Put-Call Parity Put-call parity The difference between a call option price and a put option price for European-style options with the same strike price and expiration date is equal to the difference between the underlying stock price and the discounted strike price.
Put-Call Parity C = call option price P = put option price S = current stock price K = option strike price r = risk-free interest rate T = time remaining until option expiration
Sigma can be found by trial and error, or by using the following formula, which yields accurate implied volatility values as long as the stock price is not too far from the strike price of the option contract.