CPRI Bearish Calendar Put Spread Appears to be a Good Buy at 35 Cents


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This CPRI Calendar Put Spread Aims for 424% ROI

Bearish play with a target stock price of $32.50

Strategy has +424% upside potential and 41% undervalued


Strategy: Long CPRI Calendar Put Spread
Sell 17-May-24 32.5 Put0.15
Buy 21-Jun-24 32.5 Put0.50
Debit:$0.35


Capri Holdings is weaker by -2.8% today to $35.47. The shares have been in a steady downtrend since April 16, based on CPRI moving averages. Setting up this calendar spread with strikes at $32.5 gives you a bearish bias to tap into CPRI stock's weakness.

Option Profit Calculator Results for CPRI Calendar Spread at 17-May-24 Expiration

In this scenario, the optimal stock price for the option strategy would be $32.50 on the date of the first expiration, May 17, 2024. This is equal to the strike price of the options in the spread. Since CPRI is in a technical downtrend currently, and the strikes are below the current stock price of $35.47, the spread is taking advantage of the stock's downward momentum. If the stock price is $32.50 at expiration, we can benefit from the 17-May-24 put, which we sold, expiring worthless, and the option that we are long, the 21-Jun-24 put, will still have time premium built in.

Since we do now know what the exact implied volatility will be on May 17, we can use our historical data to make an educated estimate to help us calculate the value of the 21-Jun-24 option. Applying the median historical implied volatility of 49.0 from similar options, the theoretical value of the put is 1.83 at the date of the 17-May-24 expiration. Using the above assumptions gives us a potential upside of +424% for this calendar spread.

CPRI Calendar Spread Value vs. Market Price

According to Market Chameleon estimated value, CPRI Calendar Spread is trading at a 41% discount to historical benchmark.

If we use historical data to measure how similar spreads in CPRI were priced in the market, the 4-year average price was 0.59, with a high mark of 1.35 and a low of 0.09.

Currently, the calendar put spread is bid at 0.15 and offered at 0.35. The midpoint of the spread is 0.25.

If we use 0.59 as our historical fair value benchmark, the current market ask price is at a 41% discount, while the current market midpoint represents a 58% discount.

Current PriceHistorical Values of Similar Spreads
BidAskMidpointAverageHighLow
0.150.350.250.591.350.09
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The CPRI calendar put spread we've identified here can be a good way to play a bearish outlook because the option strategy has a +424% upside potential, is 41% underpriced relative to historical measures, and will benefit if the stock continues to trend lower to $32.50.

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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