I was watching PSS after it gapped up on earnings report and is now trading at all time high. Had wanted to enter on NRB 6th bar high (on 15 min chart)supported by upward 5 EMA and also a 5th bar hammer. Initial stop would be below 6th bar low. Did a check on the option chain for Dec 25 Call and I was turned off. Option priced at 5.5-5.9 => 0.4 spread!!! Clueless why this stock which has an average volume of abt 1 mil and open interest of 1,403 has such wide bid-ask spread. Can anyone throw some light on this?
The 25 Call is deep ITM with delta @ 0.94. This would have been my chosen strike due to the following reasons:
-It is a slightly higher risk setup as the entry is below OR high -On eve of Thanksgiving, I'm not sure how market will behave later and how far this stock can move -Dec 30 Call delta @ 0.6 only. And because of the above 2 reasons pointing to higher chance of uncertainty, I would prefer to have a higher delta to capture as much gains as possible
As I'm writing now, PSS is climbing up nicely (slightly over $31) and Dec 25 Call is now worth 6.0-6.2. Bid-ask spread has narrowed down somehow. Of course I could have tried to enter the trade with a in-between price of say 5.7, but my concern is more on the exit part should the trade turn sour. I wouldn't want to assume that the spread would narrow down when I want to exit.
(Edit: chart added. Looking back, PSS behaved really well, moving along the 5 EMA nicely. If I have taken this trade, would probably have taken profit at 18th bar low and 21st bar low)