Parity

Parity

For convertibles, level at which a convertible security's market price equals the aggregate value of the underlying common stock; value/worth of the convertible bond considered only as an equity instrument (Conversion ratio times common price). See: Conversion value. For international parity, U.S.$ price of a foreign stock's last sale in an overseas market (Local currency stock price times forex rate times ADR ratio). For listed parity, condition whereby no party has floor priority, and matching thus occurs. For options parity, dollar amount by which an option is in the money. See: Intrinsic value.

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Parity

1. The state of being equal. Parity is used in a variety of contexts. For example, parity is achieved when the value of a convertible security equals the value of the underlying common stock.

2. A situation in which the total of the premium and the strike price of an option are equal to the market value of the underlying asset. For example, if the premium is $5 per share and the strike is $10, then parity is achieved when the market value of the underlying is $15 per share. See also: At-the-money.

3. See: Par.

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parity

The state of an option when its premium plus the strike price is equal to the market price of the underlying stock. If Amazon.com stock is selling at $17 per share, an option to buy the stock at $15 would be selling at parity if its premium is $2. See also conversion parity.

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Parity

What Does Parity Mean?

(1) In general, a situation of equality. Parity can occur in many different contexts, but it always means that two things are equal. (2) The official value. (3) In an exchange market, the situation that occurs when all brokers bidding for the same security have equal standing as a result of identical bids.

Investopedia explains Parity

(1) For example, in the foreign exchange market, currencies are at parity when their exchange rate is exactly one to one. (2) In other words, the par value. (3) When parity occurs, the market must determine which bidding broker will obtain the security. This winning bid typically is awarded by means of a random drawing.

Related Terms:
• Bond
• Broker-Dealer
• Market Maker
• Par Value
• Stock Market