SPY Debit Call Spread is Underpriced at $2.19; Theoretical Value $2.33


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This SPY Debit Call Spread Can Net 60% in 21 Days

Bullish play with a target stock price of $397.50 or above

Strategy has +60% upside potential and 6% undervalued


Expiration24-Feb-23
Buy394 Call
Sell397.5 Call
Debit:$2.19


SPDR S&P 500 ETF Trust has fallen by -0.7% today to $397.40. The above option strategy is a bullish play that shows a theoretical 70% win rate, based on SPY's historical stock price behavior.

Option Profit Calculator for SPY Call Spread at 24-Feb-23 Expiration

If SPY stock price at expiration is at or above $397.50, this spread has a 60% upside potential

The optimal stock price for this option strategy is to close at or above $397.50 on the expiration date, February 24, 2023. In that scenario, both calls would be in-the-money, so the spread would be worth the maximum value of 3.50. That would equate to the potential upside of +60% for this call spread with 21 days left to expiration.

The maximum gain will be realized if the stock price is at or above 397.50. The maximum gain is $1.31

The breakeven point is at 396.19, which is 0.3% below the current spot price.

The maximum loss will occur when the stock price is at or below 394. The max loss is $2.19.

SPY Spread Current Market Price vs. Historical Average

SPY Call Spread is trading at a 6% discount to historical average.

Using historical data to measure how a similar spread in SPY was priced in the market, the 4-year average value was 2.33, with a high mark of 2.59 and a low of 1.98.

Currently, this vertical call spread is bid at 2.14 and offered at 2.19. The midpoint of the spread is 2.17.

If we use 2.33 as our historical fair value benchmark, the current market ask price is at a 6% discount, while the current market midpoint represents a 7% discount.

Current PriceHistorical Values of Similar Spreads
BidAskMidpointAverageHighLow
2.142.192.172.332.591.98
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The SPY call spread we've identified here can be a good way to play a bullish outlook because the option strategy has a +60% upside potential, is 6% underpriced relative to historical measures, and will benefit from a stock price at or above $397.50.

See how Market Chameleon can help you make smarter and more efficient trades!


NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated And may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices And were Not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


The information is provided for informational purposes only and should not be construed as investment advice. All stock price information is provided and transmitted as received from independent third-party data sources. The Information should only be used as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments and trading strategies. The Company does not guarantee the accuracy, completeness or timeliness of the Information.