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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Darth Trader who wrote (7119)3/19/1998 10:52:00 PM
From: William G. Murray  Read Replies (1) of 14162
 
Good Evening Darth Trader,

Parity is when the time premium for the option disappears. The price of the stock equals the price of the option plus the option strike.

Example : The stock is now at $21 3/8 and the March 20 calls sell for $1 3/8. They are at parity.

Parity is usually seen near option expiration when the option is "in the money" (the time premium is all used up), or if the stock has appreciated significantly past the strike. Example: The stock is at $25 and the $15 strike price is selling for $10.

When at parity, your return is the same as it would be if you waited until option expiration and the stock was called from you except you now have this return at an earlier date.

Hope this sounds coherent and is at least a little bit helpful.

B.M.
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