My example is:
- Current price = 20,
- If it goes up it'll be worth 22, if it goes down it will be worth 18
- risk free rate: 12%, time = 3 months
- Strike = 21
- call option is worth 0.633
I know that if the call option value is less than 0.633 then there's an opportunity for arbitrage but what about if the option is being sold in the market at 0.7? What strategy is used in this case?