RPTP options rationale
> From Kris: Sorry, your math is wrong. Option premium which is above the strike price : 2.80 is your sunk 'cost' As you have paid to get these options, you cannot say, you got the stock at half the price. How do you account for $2.80 ?
Kris,
You are correct if I was going to hold the May 2.50 options to expiration in May. But I won't. I will trade this as a run up trade to the April 30 PDUFA date. And because the delta is .94, for $2.80 I get almost the same upside potential, and downside, as owning the stock for $5.00+. But I only paid $2.80 for that same movement. In return for that same profit or loss privilege using much less capital, I paid only 15 cents premium. I shouldn't even have to give up much of that 15 cents if I sell the options at least a week before the PDUFA date which is about one month before the May expiration. Hopefully I will lose only a few cents to time decay.
This is just another way to trade a run up strategy. I don't always do it but sometimes deep in the money calls with very little extrinsic value in them makes more sense to me than buying the stock outright.
Best of luck with RPTP.
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