This JPM Calendar Call Spread Can Net 157%
Bullish play with a target stock price of $230
Strategy has +157% upside potential and 15% undervalued
| Strategy: JPM Calendar Call Spread | |
| Sell 29-Nov-24 230 Call | 2.49 |
| Buy 20-Dec-24 230 Call | 4.40 |
| Debit: | $1.91 |
Option Profit Calculator Results for JPM Calendar Spread at 29-Nov-24 Expiration
In this scenario, the optimal stock price for the option strategy would be $230.00 on the date of the first expiration, November 29, 2024. This is equal to the strike price of the options in the spread. Since JPM is in a technical uptrend currently, and the strikes are above the current stock price of $220.38, the spread is taking advantage of the stock's upward momentum. If the stock price is $230.00 at expiration, we can benefit from the 29-Nov-24 call, which we sold, expiring worthless, and the option that we are long, the 20-Dec-24 call, will still have time premium built in.
Since we do now know what the exact implied volatility will be on November 29, we can use our historical data to make an educated estimate to help us calculate the value of the 20-Dec-24 option. Applying the median historical implied volatility of 20.6 from similar options, the theoretical value of the call is 4.91 at the date of the 29-Nov-24 expiration. Using the above assumptions gives us a potential upside of +157% for this calendar spread.
JPM Calendar Spread Value vs. Market Price
According to Market Chameleon estimated value, JPM Calendar Spread is trading at a 15% discount to historical benchmark.
If we use historical data to measure how similar spreads in JPM were priced in the market, the 4-year average price was 2.24, with a high mark of 3.08 and a low of 1.30.
Currently, the calendar call spread is bid at 1.43 and offered at 1.91. The midpoint of the spread is 1.67.
If we use 2.24 as our historical fair value benchmark, the current market ask price is at a 15% discount, while the current market midpoint represents a 25% discount.
| Current Price | Historical Values of Similar Spreads | ||||
| Bid | Ask | Midpoint | Average | High | Low |
| 1.43 | 1.91 | 1.67 | 2.24 | 3.08 | 1.30 |
Takeaway
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