This SPY Calendar Call Spread Could Pay 3.2 to 1
Bullish play with a target stock price of $596
Strategy has +319% upside potential and 32% undervalued
| Strategy: SPY Calendar Call Spread | |
| Sell 13-Dec-24 596 Call | 3.79 |
| Buy 31-Dec-24 596 Call | 5.32 |
| Debit: | $1.53 |
Option Profit Calculator Results for SPY Calendar Spread at 13-Dec-24 Expiration
In this scenario, the optimal stock price for the option strategy would be $596.00 on the date of the first expiration, December 13, 2024. This is equal to the strike price of the options in the spread. Since both SPY and the market are showing upward pressure, and the strikes are above the current stock price of $572.78, the spread is taking advantage of this bullish momentum. If the stock price is $596.00 at expiration, we can benefit from the 13-Dec-24 call, which we sold, expiring worthless, and the option that we are long, the 31-Dec-24 call, will still have time premium built in.
Since we do now know what the exact implied volatility will be on December 13, we can use our historical data to make an educated estimate to help us calculate the value of the 31-Dec-24 option. Applying the median historical implied volatility of 12.1 from similar options, the theoretical value of the call is 6.42 at the date of the 13-Dec-24 expiration. Using the above assumptions gives us a potential upside of +319% for this calendar spread.
SPY Calendar Spread Value vs. Market Price
According to Market Chameleon estimated value, SPY Calendar Spread is trading at a 32% discount to historical benchmark.
If we use historical data to measure how similar spreads in SPY were priced in the market, the 4-year average price was 2.24, with a high mark of 3.50 and a low of 1.25.
Currently, the calendar call spread is bid at 0.93 and offered at 1.53. The midpoint of the spread is 1.23.
If we use 2.24 as our historical fair value benchmark, the current market ask price is at a 32% discount, while the current market midpoint represents a 45% discount.
| Current Price | Historical Values of Similar Spreads | ||||
| Bid | Ask | Midpoint | Average | High | Low |
| 0.93 | 1.53 | 1.23 | 2.24 | 3.50 | 1.25 |
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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