 Puts and calls provide a building block for developing complex option contracts and at this situation we may have two types of payoffs like payoffs from buying a put option and simultaneously buying the underlying asset. How such type of payoffs are there? We have two types of strategies. The first is buying a put option on a stock and simultaneously buying the underlying stock. If you see that the stock is greater than the exercise price, the put option will be worthless. This means that the value of the combined position is now just equal to the value of the stock at the expiration date. And if the exercise price is greater than the stock price, then the decline in the value of the share will be exactly offset by the rise in the value of the put option contract. So there is a protection in this combined contract which is termed as a protective put means that we are buying a put and the underlying stock together. In other words, we are buying an insurance on the stock. The stock in this case can always be sold at a higher at the exercise price regardless of the decline in the price of the stock itself. In second strategy, we are buying a call and a risk free zero coupon bond with a face value of $50. So how the payoff payoffs in this contract will will behave buying a zero coupon bond will be guaranteed to receive $50 as per the face value of this particular bond. Now it is immaterial that how much the price of the stock will be at the date of expiry. The same payoff patron from buying a put and the underlying stock and a call a zero coupon bond we are seeing in these two strategies. Now both these strategies have same payoffs and that is the reason these two types of strategies are now believed to have same patron of the cost. In other words, in these particular situations may not choose the low cost strategy avoiding the high cost strategy because the strategy first have the cost just like equal to the cost of the second strategy. In other words, in strategy one the we have a stock and the put option. So the price of the stock and the price of the put option under strategy one is equal to the price of the call and the present value of the exercise price under strategy two. This relationship between put and call is termed as a put call parity relationship and it is a two way of buying protective put in the manner that at first phase we are buying a put and the underlying stock simultaneously in which the total cost if this of this strategy is equal to the price of the stock plus the price of the put. And in strategy two we are buying a call and a zero coupon bond in which the total cost is equal to the price of the call plus the present value of the exercise price and the present value exercise price is basically the power value of the underlying zero coupon bond. In free leg strategy we can replicate the purchase of a stock by buying a call and selling a put and then buying a zero coupon bond. This means that the price of stock is now equal to the price of a call and the price of the present value of the exercise price and from these two prices we will detect the price of the put in order to determine the price of the stock. Now in this free leg strategy the investors are said to have purchased a synthetic stock which means that we may have one more transformation of this strategy in the way that if we deduct price of the call from the price of the stock then the resulting value will be equal to the negative value of the put plus the present value of the exercise price. So this is our conservative strategy because as it is also known as selling a covered call. Now the beauty of a put call parity relationship is that it shows that how any strategy in the option contract can be achieved in two different ways. To understand this put call parity relationship we have an example where the price of a share of a stock is $80 and a three month call option with the strike price of $85 goes for $6. This free rate is 5% and the value of a three month put option with an exercise price of $85 would be what? So we are to determine the value of the put option in using this data. If we rearrange the put call parity relationship equation to solve for the price of the put then the equation says like the price of the put is equal to the value minus value of the stock plus the price of the call and the present value of the exercise price and for a stock price we have an $80 the price of the call is equal to $6 and to determine the present value of the exercise price we need to discount the value of $85 using the discount factor of 5% for a three month period the resulting figure of this equation is equal to $9.74 and that is the value of the put under this contract.