In Options Trading, What Is the Equivalent of a Price Discrepancy That an Arbitrageur Would Exploit?

In options trading, an arbitrageur exploits discrepancies between the price of an option and its theoretical value, or between related options and the underlying asset. A common example is exploiting a violation of the Put-Call Parity principle, which defines a relationship between the price of a European call option, a European put option, the underlying stock price, and the strike price.

When this relationship breaks down, an arbitrage opportunity exists to profit risk-free by simultaneously buying and selling the mispriced instruments.