This LRCX Calendar Call Spread Can Net 174%
Bullish play with a target stock price of $1080
Strategy has +174% upside potential and 11% undervalued
| Strategy: LRCX Calendar Call Spread | |
| Sell 26-Apr-24 1080 Call | 18.10 |
| Buy 21-Jun-24 1080 Call | 42.50 |
| Debit: | $24.40 |
Option Profit Calculator Results for LRCX Calendar Spread at 26-Apr-24 Expiration
In this scenario, the optimal stock price for the option strategy would be $1080.00 on the date of the first expiration, April 26, 2024. This is equal to the strike price of the options in the spread. Since LRCX is in a technical uptrend currently, and the strikes are above the current stock price of $986.02, the spread is taking advantage of the stock's upward momentum. If the stock price is $1080.00 at expiration, we can benefit from the 26-Apr-24 call, which we sold, expiring worthless, and the option that we are long, the 21-Jun-24 call, will still have time premium built in.
Since we do now know what the exact implied volatility will be on April 26, we can use our historical data to make an educated estimate to help us calculate the value of the 21-Jun-24 option. Applying the median historical implied volatility of 38.2 from similar options, the theoretical value of the call is 66.86 at the date of the 26-Apr-24 expiration. Using the above assumptions gives us a potential upside of +174% for this calendar spread.
LRCX Calendar Spread Value vs. Market Price
According to Market Chameleon estimated value, LRCX Calendar Spread is trading at a 11% discount to historical benchmark.
If we use historical data to measure how similar spreads in LRCX were priced in the market, the 4-year average price was 27.36, with a high mark of 32.91 and a low of 24.20.
Currently, the calendar call spread is bid at 21.00 and offered at 24.40. The midpoint of the spread is 22.70.
If we use 27.36 as our historical fair value benchmark, the current market ask price is at a 11% discount, while the current market midpoint represents a 17% discount.
| Current Price | Historical Values of Similar Spreads | ||||
| Bid | Ask | Midpoint | Average | High | Low |
| 21.00 | 24.40 | 22.70 | 27.36 | 32.91 | 24.20 |
Takeaway
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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.
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