We have put-call parity

[value of call] + [PV of exercise price] = [value of put] + [share price]

so, if we want to sell stock short, we have

-[share price] = [value of put] - [value of call] - [PV of exercise price]

In that case we act as follows:

  1. buy put
  2. sell call short
  3. borrow the value PV of exercise price

The question is why -[PV of exercise price] = borrowing its value

  • Your equation determines the differential in the respective premium of the put and the call, taking into account the strike price, the share price and the risk free rate. Perhaps this explanation will help: investopedia.com/terms/p/putcallparity.asp – Bob Baerker Jan 10 at 20:36

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