A question in regards to using options to follow the 9 day RSI signals. When you have a delta > .90 what factors determine if the option bid/ask spread is worth jumping in to. (Sorry, I didn't explain that very well.)
For example. THE PGN Jul 50 put current spread between the bid and ask is around .40. This means that if I bought the option, PGN would have to drop by .40 just to break even. Correct? Should some sort of daily average of the stock be used to determine if this is a wise choice or not?
So my question is that how to you decide if the bid/ask range looks good or not?
First of all, I wouldn’t touch it right now because the stock is already down. But to answer your question, the stock as I type this is at about 43.20. The option is 7.10 bid 7.50 asked. The option has an intrinsic value of 6.80. There are 25 days to go. I personally wouldn’t want it unless I could buy it closer to its intrinsic value.
Look at it this way. If the stock ends up with a 3% profit, it would mean the stock is at 42.22 (it closed yesterday at 43.53). That would imply an intrinsic value of about 7.80 for the option. If you pay too much for the put, you won’t make any money after transaction costs.