bluejazzy

Okay, seriously.

First, think of a protective put in its natural sense. You own the underlying and you want insurance against downside risk without forgoing upside gain. So, the right side of the equation is: Long the security, long the put. (So, P + S)

Then, a fiduciary call is what's left: Long the call (for upside benefit) and long treasury bill equal to the strike price. (So, C + X)

Hence: C + X = P + S

The X is always discounted at the risk free rate. This means that if S = X (the stock is trading at the strike price), C must be MORE than P by the risk free rate.

- Robert