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Inspect a protective payoff
One underlying unit plus a same-strike put settles to S+max(K−S,0) = max(S,K). One call plus a certain terminal K also settles to max(S,K). Check both regions rather than copying a diagram label.
Attach current costs to the correct portfolios
The stock-plus-put costs S0+P0. The call-plus-terminal-cash portfolio costs C0+K×D, where D is a compatible discount factor. Under the stated European, no-income and frictionless comparison, equal terminal payments motivate equal current values.
| Layer | Question |
|---|---|
| Expiry identity | Do both portfolios pay max(S,K)? |
| Current costs | Which dated prices and factor fund the legs? |
| Pricing assumptions | Are exercise, income and friction conditions compatible? |
Keep the exercise and income scope explicit
The introductory equality used here concerns European options on the same underlying, strike and expiry, with no intervening underlying income or benefit. Early exercise, dividends or other contract details require their own treatment.
Reconcile any discrepancy before interpreting it
A difference in quoted current costs can reflect mismatched dates, units or assumptions. This lesson checks the model relationship, not an executable trading opportunity or a broker’s available financing terms.