Options Mispricing Snapshot – May 14, 2018

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TIME:
May 14, 2018 10:00 ET (New York)

All three equity indices have jumped to their highs of the recent months entering the slightly oversold territory. Volatility indices are at their lows since January.

SPY and QQQ return statistics indicate that even in an oversold regime they both tend to either move higher or stay on the achieved levels. Implied volatility is usually low but puts are still overpriced due to the not that big probability of a significant move downward. Meanwhile, IWM has another character in this regime since it is more susceptible to the negative news and usually more ready to correct down. Combination of such behavior with low option prices makes IWM near-the-money puts underpriced.

Call options are priced fairly except for ATM calls on IWM.

Mispricing summary for the options with two to five weeks until expiration:

  Puts  Calls
OTM ATM ATM OTM
SPY

Near-term expirations – Fairly priced

Farther expirations – Overpriced substantially

Fairly priced Fairly priced
QQQ Overpriced Overpriced Fairly priced Fairly priced
IWM

Near-term expirations – Fairly priced

Farther expirations – Overpriced

Near-term expirations – Underpriced

Farther expirations – Fairly priced

Overpriced Fairly priced

Major opportunities are observed mostly in puts: SPY and QQQ with 4-5 weeks till expiration. IWM ATM near-term long puts can be considered as a directional play with downward move expectation.

Options Mispricing Snapshot – May 7, 2018

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TIME:
May 7, 2018 10:00 ET (New York)

All three indices have been fluctuating within the recent months’ range toward the end of the earnings season. RSI(14) was again hovering slightly above 50 mark showing neither oversold nor overbought condition.

Option prices have been keeping their move to fair values leaving less mispricing opportunities. Overall, the options market is getting back to normal: puts are overpriced (mostly OTM), calls are priced fairly.

Mispricing summary for the options with two to five weeks until expiration:

  Puts  Calls
OTM ATM ATM OTM
SPY

Near-term expirations – Fairly priced

Farther expirations – Overpriced substantially

Fairly priced Fairly priced
QQQ Overpriced Fairly priced Fairly priced Fairly priced
IWM

Overpriced  substantially

Fairly priced

Fairly priced Fairly priced

 

Opportunities in QQQ persisting in the previous weeks have almost gone; just OTM puts remain overpriced. Overall, some interesting mispricing is observed only in the OTM puts area for all three indices.

Options Mispricing Snapshot – April 30, 2018

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TIME:
April 30, 2018 10:30 ET (New York)

All three indices finished the last week almost unchanged, again.  Overall, they remain almost in the middle of the range formed in recent months. RSI(14) is still hovering around 50 mark showing neither oversold nor overbought condition.

Meanwhile, the option pricing picture has changed somewhat. Especially in the near-term expirations where prices of put options have moved closer to their Fair Values and made them priced almost fairly (for SPY and IWM).

Overall, options market seems to calm down and is coming to normal. The same force has driven the call prices down making them mostly underpriced.

Mispricing summary for the options with two to five weeks until expiration:

  Puts  Calls
OTM ATM ATM OTM
SPY

Near-term expirations – Fairly priced

Farther expirations – Overpriced substantially

Fairly priced Fairly priced
QQQ Overpriced substantially Overpriced Underpriced substantially Underpriced
IWM

Near-term expirations – Fairly priced

Farther expirations – Overpriced

Underpriced Underpriced

 

Interesting opportunities remain in QQQ where puts are still substantially overpriced and calls are underpriced (bullish risk reversal strategy). Among SPY options, the only opportunity remains is selling puts with farther expirations (20-25 trading DTE). IWM has just opened an opportunity for calls buying.

Options Mispricing Snapshot, April 23, 2018

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TIME:
April 23, 2018 10:30 ET (New York)

All three indices finished the last week almost unchanged. They tried to continue their short-term uptrends started from the strong support levels reached in the beginning of February and April but this attempt has been interrupted in the last half of the week. Overall, they remain in the middle of the range formed in recent months.

Implied Volatility stays slightly elevated, RSI(14) is hovering around 50 mark showing neither oversold nor overbought condition.

No substantial changes in options mispricing occurred since the last Snapshot (April, 16): call options are priced fairly except for QQQ, puts are mostly overpriced as usual.

Mispricing summary for the options with 2-5 weeks to expiration:

  Puts  Calls
OTM ATM ATM OTM
SPY Overpriced Fairly priced Fairly priced Fairly priced
QQQ Overpriced substantially Overpriced substantially Underpriced substantially Underpriced
IWM Overpriced substantially  Overpriced Fairly priced Fairly priced

 

Options Mispricing Snapshot, April 16, 2018

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TIME:
April 16, 2018 11:50 ET (New York)

All major equity indices have recovered from the recent correction and bounced back from their support levels. Neither oversold nor overbought condition is observed as RSI(14) is hovering around 50 level. Volatility gets back to normal, the markets are overall normalizing. 

Option market priced have moved closer to their Fair Values (puts are less overpriced, calls are valued mostly fairly) except for QQQ where mispricing remains substantial.

Mispricing summary for options with 2-5 weeks to expiration:

  Puts  Calls
OTM ATM ATM OTM
SPY Overpriced Fairly priced Fairly priced Fairly priced
QQQ Overpriced substantially Overpriced substantially Underpriced substantially Underpriced
IWM Overpriced substantially  Overpriced Fairly priced Fairly priced

 

The information provided on this Website is for informational purposes only and should not be considered as an investment advice. It is not intended to replace consultation with a qualified financial professional. Investing in options involves risk of potential loss exceeding the whole amount of money invested. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.