This XBI Calendar Put Spread Aims for 289% ROI
Bearish play with a target stock price of $89
Strategy has +289% upside potential and 11% undervalued
| Strategy: Long XBI Calendar Put Spread | |
| Sell 20-Dec-24 89 Put | 1.48 |
| Buy 17-Jan-25 89 Put | 2.24 |
| Debit: | $0.76 |
Option Profit Calculator Results for XBI Calendar Spread at 20-Dec-24 Expiration
In this scenario, the optimal stock price for the option strategy would be $89.00 on the date of the first expiration, December 20, 2024. This is equal to the strike price of the options in the spread. Since there is notable downward pressure in both the market and XBI, and the strikes are below the current stock price of $93.42, the spread is taking advantage of the market's bearish bias. If the stock price is $89.00 at expiration, we can benefit from the 20-Dec-24 put, which we sold, expiring worthless, and the option that we are long, the 17-Jan-25 put, will still have time premium built in.
Since we do now know what the exact implied volatility will be on December 20, we can use our historical data to make an educated estimate to help us calculate the value of the 17-Jan-25 option. Applying the median historical implied volatility of 32.6 from similar options, the theoretical value of the put is 2.95 at the date of the 20-Dec-24 expiration. Using the above assumptions gives us a potential upside of +289% for this calendar spread.
XBI Calendar Spread Value vs. Market Price
According to Market Chameleon estimated value, XBI Calendar Spread is trading at a 11% discount to historical benchmark.
If we use historical data to measure how similar spreads in XBI were priced in the market, the 4-year average price was 0.85, with a high mark of 1.20 and a low of 0.49.
Currently, the calendar put spread is bid at 0.49 and offered at 0.76. The midpoint of the spread is 0.62.
If we use 0.85 as our historical fair value benchmark, the current market ask price is at a 11% discount, while the current market midpoint represents a 27% discount.
| Current Price | Historical Values of Similar Spreads | ||||
| Bid | Ask | Midpoint | Average | High | Low |
| 0.49 | 0.76 | 0.62 | 0.85 | 1.20 | 0.49 |
Takeaway
See how Market Chameleon can help you make smarter and more efficient trades!
Contact Information:
If you have feedback or concerns about the content, please feel free to reach out to us via email at support@marketchameleon.com.
About the Publisher - Marketchameleon.com:
Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.
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.
