Opportunity with Nokia (NOK)

As you may have heard, Nokia (Ticker: NOK) is teaming up with Microsoft to deliver phones running Windows Phone 7 OS.  Since that announcement, the stock has been punished and is sitting at around $8.50 these days.  The future for Nokia looks very uncertain, and I believe as a result of this, there is quite an anomaly with one of its call options.

As you know, the farther out an option expires, the more expensive it is.  It's logical...because if you have a later expiry date, the chances are greater that your position will make money.  However, what I found with Nokia's call options with a strike price of $5.00 was essentially the opposite.  As you can see in the table below, options that are set to expire in July of 2011 have a higher asking price than ones set to expire in January 2013!  The bid prices, however, are as you would expect (i.e. more expensive as your get farther away).  In any case, what’s happening is that the time value of the options is pretty near to zero!  The strike price is $5.00 + cost of option of $3.55 = $8.55, which is just $0.05 higher than the current share price.  I have never seen an option so far out being sold so cheaply.  If I were to buy the Jan 2013 option now, as long as the stock moves up above $8.50 sometime between now and January 2013, I can make some money.  This is very, very curious!

Table 1: NOK Call Options with $5.00 Strike Price

Call Options

Strike Price at 5.00

Expires Symbol Last Chg Bid Ask Vol Open Int Apr 11 NOK110416C00005000 2.98 0.00 3.30 3.50 0 122 Jul 11 NOK110716C00005000 4.10 0.00 3.30 3.60 0 204 Oct 11 NOK111022C00005000 3.95 0.00 3.30 3.60 0 5 Jan 12 NOK120121C00005000 3.60 0.00 3.35 3.55 50 3,212 Jan 13 NOK130119C00005000 3.50  0.10 3.40 3.55 10 4,811