This TQQQ Calendar Put Spread Could Pay 2.5 to 1
Bearish play with a target stock price of $68
Strategy has +248% upside potential and 11% undervalued
| Strategy: Long TQQQ Calendar Put Spread | |
| Sell 20-Dec-24 68 Put | 2.08 |
| Buy 17-Jan-25 68 Put | 3.50 |
| Debit: | $1.42 |
Option Profit Calculator Results for TQQQ Calendar Spread at 20-Dec-24 Expiration
In this scenario, the optimal stock price for the option strategy would be $68.00 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 TQQQ, and the strikes are below the current stock price of $75.65, the spread is taking advantage of the market's bearish bias. If the stock price is $68.00 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 68.5 from similar options, the theoretical value of the put is 4.94 at the date of the 20-Dec-24 expiration. Using the above assumptions gives us a potential upside of +248% for this calendar spread.
TQQQ Calendar Spread Value vs. Market Price
According to Market Chameleon estimated value, TQQQ Calendar Spread is trading at a 11% discount to historical benchmark.
If we use historical data to measure how similar spreads in TQQQ were priced in the market, the 4-year average price was 1.60, with a high mark of 2.54 and a low of 0.79.
Currently, the calendar put spread is bid at 1.29 and offered at 1.42. The midpoint of the spread is 1.36.
If we use 1.60 as our historical fair value benchmark, the current market ask price is at a 11% discount, while the current market midpoint represents a 15% discount.
| Current Price | Historical Values of Similar Spreads | ||||
| Bid | Ask | Midpoint | Average | High | Low |
| 1.29 | 1.42 | 1.36 | 1.60 | 2.54 | 0.79 |
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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