Parity arbitrage
Definition · Level 3 · Spreads & short options
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Locking in a mispricing between options and stock with a conversion or reversal; the edge is usually cents and can be eaten by financing, dividends or borrow costs.
Example
Calls cheap vs puts → buy call, sell put, short stock.
Where Tradecraft teaches it
Level 3 · Spreads & short options, in the lesson “Synthetics, parity and the reversal”: Put-call parity, synthetic long stock, and why conversions and reversals lock a price.
Related terms
- ReversalShort stock + long call + short put, same strike.
- SyntheticBuy a call and sell a put at the same strike.
- BodyThe middle strike of a butterfly, short in a long fly — where a long fly earns the most at expiration.
- Breakeven win rateHow often a trade must win just to net zero, treating each outcome as a full win or a full loss: max loss ÷ (max profit + max loss), i.e. 1 ÷ (1 +…
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- Buying-power reduction (BPR)Capital a broker sets aside to hold a position.