This game tests your understanding of put-call parity. The value of puts and calls in this game is linked by put-call parity. So, the only difference between the value of the put and the call is the intrinsic value of the option. Let’s work through an example.
Call value: 12.61
Put value: 11.02
Here we need to calculate the Strike price of the call and the put. We reason as follows:
i) The call is in-the-money, since it is worth more than the put.
ii) The intrinsic value of the call is the difference between its value and that of the put. Therefore intrinsic value = 12.61 – 11.02 = 1.59
iii) The strike of the call must therefore be the spot price minus the intrinsic value i.e. 268.59 – 1.59 = 267
We are making use of the following rule that stems from put-call parity:
Abs difference between Put and Call value = Abs difference between Spot Price and Strike
Once this is understood, it is just a case of realising whether the call or the put is more valuable (due to being in-the-money) and whether the strike is above or below the spot price.
A good option trader will have no trouble calculating put-call parity in his head. Practise with the Put-call Parity Volcube Mini-game until you can calculate the answers very rapidly and accurately.
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