SMH Bull Call Spread is Undervalued by 16 Cents


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This SMH Debit Call Spread Targets 57% Return in 7 Days

Bullish play with a target stock price of $200 or above

Strategy has +57% upside potential and 6% undervalued


Expiration23-Feb-24
Buy196 Call
Sell200 Call
Debit:$2.55


Vaneck Semiconductor ETF has fallen by -0.9% today to $201.30. Based on moving averages, SMH has been in a uptrend since January 5, so this spread would be a great way to leverage a bullish outlook. Based on historical stock price behavior, this spread for SMH has a theoretical 68% success rate.

Option Profit Calculator for SMH Call Spread at 23-Feb-24 Expiration

If SMH stock price at expiration is at or above $200.00, this spread has a 57% upside potential

The optimal stock price for this option strategy is to close at or above $200.00 on the expiration date, February 23, 2024. In that scenario, both calls would be in-the-money, so the spread would be worth the maximum value of 4.00. That would equate to the potential upside of +57% for this call spread with 7 days left to expiration.

The maximum gain will be realized if the stock price is at or above 200.00. The maximum gain is $1.45

The breakeven point is at 198.55, which is 1.4% below the current spot price.

The maximum loss will occur when the stock price is at or below 196. The max loss is $2.55.

SMH Spread Current Market Price vs. Historical Average

SMH Call Spread is trading at a 6% discount to historical average.

Using historical data to measure how a similar spread in SMH was priced in the market, the 4-year average value was 2.71, with a high mark of 2.98 and a low of 2.44.

Currently, this vertical call spread is bid at 2.35 and offered at 2.55. The midpoint of the spread is 2.45.

If we use 2.71 as our historical fair value benchmark, the current market ask price is at a 6% discount, while the current market midpoint represents a 9% discount.

Current PriceHistorical Values of Similar Spreads
BidAskMidpointAverageHighLow
2.352.552.452.712.982.44
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The SMH call spread we've identified here can be a good way to play a bullish outlook because the option strategy has a +57% upside potential, is 6% underpriced relative to historical measures, and will benefit from a stock price at or above $200.

See how Market Chameleon can help you make smarter and more efficient trades!



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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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