Define a digital call dc and a digital put dp with a strike price K and exercise time T to have payouts dc(S, T) = ( 0 if S < K 1 if S K and dp(S, T) = ( 0 if S K 1 if S < K In other words, the payoff of the option is either $0 or $1, regardless of the stock price. Use a no-arbitrage argument to derive the digital put-call parity formula dc(t) + dp(t) = e r(T t) .