The Problem in Words
You believe the stock of National Semiconductor (symbol: NSM) is about to go up. To capitalize on this belief, you would like to purchase call options on NSM. Checking the quotes on NSM options with your online brokerage service, you find that NSM call options are trading at 6 5/8 per share. These call options have an exercise price of $40 and expire 133 days from today. The current price of NSM shares is 40 3/4. Are the options trading at a fair price?