Calls are puts? How is that possible? Aren't there two types of options: calls and puts? Don't investors buy calls when bullish and puts when bearish?
It's just like chemistry where scientists try to synthesize specific molecules to perform specific functions.
Calls and puts, when combined with a long or short stock position can be equivalent to each other. This is one of the reasons why it's not important to pay attention to how many calls or puts are trading. If the very bullish investor wants to disguise his/her intentions, that investor can simply buy a whole bunch of puts - opening what appears to be a bearish trade, and then buy stock to turn the position into the equivalent of owning calls.
We begin with the basic equation: long stock is equivalent to owning one call and shorting one put - when the expiration date, strike price, and underlying asset are identical.
We know this is true because: When expiration arrives, if the call is in the money, you exercise the call and own long stock. If the put is in the money, you allow the call to expire worthless and when assigned on the short put, you own 100 shares of stock.
and P = C - S; or -P = S - C
In plain language:
A call is equivalent to owning 100 shares of stock and one put
A put is equivalent to owning one call and shorting 100 shares of stock; or a short put is equivalent to a covered call (long stock, short call).
There's additional information about equivalent positions.
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