Our stock has $8 upside potential and $12 downside potential. A simple prepaid bet on this stock would entail payment of $4.80 for either long or short, as we saw. This is the put-call parity in its purest form!

Three other parameters effect the option price. After accounting for them:

• strike ($45): increases the call by $3 and reduces the put by $2:

  Call = 4.80 + 3 = $7.80

  Put = 4.80 - 2 = $2.20

• interest (4%): increases the call by $.06 and reduces the put by $.10:

  Call = 7.80 + .06 = $7.86

  Put = 2.80 - 0.10 = $2.70

  These are values at the expiration. Their present value is:

  Call = $7.83

  Put = $2.69

• volatility smile: Increases the call by $.27 and the put by $.51:

  Call = 7.83 + .27 = $8.10

  Put = 2.69 + .51 = $3.20

Voila! These are the original option prices. The SaberSystem showed how they correspond to a given high and low for the stock.

Now you see why if you are a trader of stock or equity options, you cannot afford to venture into the markets without the SaberSystem.