Look at this image. Er, please do so.
Now, consider buying the stock and selling the call at .50. The bid is .25 – more than half the stock price! That’s nuts. Why would anyone bid 53% of the price of the stock for an OTM option? Why not just buy the underlying?
Here’s the 5 year chart of AMPE. It’s a pharma corp. Look at the spikes up and down. The 5 year low was at .27. So, here’s the trade (and I did it). Buy-write for .205 ish. If AMPE goes to $0, the most you can lose is .205 plus fees, say .215 per share. If AMPE stays where it is, you make .25 per share. If it goes up past .5, you make .385 per share.
If you go in for 100 contracts (10k shares, that’s my target), then your risk is $2.1k with a max reward of $3.8k or 180% of total risk. The odds of this company going to $0 are very low, but it could easily drop to .21 again. That would leave you with the shares at roughly $0 PnL.
Considering it has spiked down to .25 range, then wicked up sharply several times, there appears to be major support in that range. The R/R on this is fantastic and I cannot figure out why this setup exists. But I suspect there are other similar ones.