What Happens If Put-Call Parity Is Violated in the Market? ▴ Learn

What Happens If Put-Call Parity Is Violated in the Market?

If put-call parity is violated, a risk-free arbitrage opportunity is created. An arbitrageur can simultaneously buy the underpriced side of the equation and sell the overpriced side, locking in a profit with no net capital outlay and no risk.

This arbitrage activity ▴ buying and selling the constituent options and the underlying asset ▴ will quickly push the prices back into equilibrium, restoring the parity relationship.

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