[Verse 1] Let me tell you about options, a contract to buy or sell A call gives you the right to purchase, when the price goes up so well A put gives you the right to sell it, when the market starts to fall Strike price is your decision point, the key that unlocks it all [Chorus] Call plus present value X equals put plus stock today C plus P-V of X equals P plus S, that's the way Put-call parity holds so true, arbitrage will make it right When the formula's in balance, everything works out just fine [Verse 2] Call option payoff simple, max of stock minus strike or zero When the stock price climbs above it, you become the trading hero Put option works the other way, max of strike minus stock or nothing When the market price drops lower, that's when puts start really jumping [Chorus] Call plus present value X equals put plus stock today C plus P-V of X equals P plus S, that's the way Put-call parity holds so true, arbitrage will make it right When the formula's in balance, everything works out just fine [Bridge] Portfolio one has a call plus bond worth strike at expiration Portfolio two holds a put plus stock, same final destination If they're not equal in the market, traders jump at the chance Buy the cheap one, sell expensive, profit from the imbalance [Verse 3] Present value of the strike price, discount it back today Time value of money matters, in the options pricing game European options only, exercise at expiration date This relationship stays constant, it's the market's natural state [Chorus] Call plus present value X equals put plus stock today C plus P-V of X equals P plus S, that's the way Put-call parity holds so true, arbitrage will make it right When the formula's in balance, everything works out just fine [Outro] Remember put-call parity, the foundation strong and true Master this relationship, and options will make sense to you
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