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

SUMMARY

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.

Market regime Filtering

To make our estimation more reliable, we filter the historical data and select from the past only those dates when the market resembled the current condition (read more here). We use three filters:

  • Long-term macroeconomic regime. We filter out the recessionary environment (or looming recession) with The Conference Board Leading Economic Index® (LEI) and select all dates when its 6-month rate-of-change was above -2%.
  • Volatility regime. We use VIX, VXN, and RVX indices as volatility filters for SPY, QQQ, and IWM respectively.
  • Short-term swing regime. We use Relative Strength Index (RSI) with 14-days interval - RSI(14)

We apply auto filtering for Volatility index and RSI selecting 300 days in history with the shortest Euclidean distance to their current values.

For each underlying, we select expirations on a range of 2-5 weeks. We present mispricing charts for each expiration and basic PL metrics for the best one-leg strategy  (buying or selling put or call) measured by the Expected profit (annualized).

SPY snapshot

 SPY has been staying within the range 260-270 again; RSI(14) level of around 50 shows no oversold condition.

VIX remains close to the lower band of the range of the last months:

SPY Expiration: May 18, 2018 (DTE 10)

Both puts and calls are fairly priced:

 

SPY Expiration: May 25, 2018 (DTE 15)

Puts are overpriced but not substantially; calls are priced fairly:

 

SPY Expiration: June 1, 2018 (DTE 19)

Puts are overpriced, especially OTM; calls are priced fairly:

 

SPY Expiration: June 8, 2018 (DTE 24)

Puts are substantially overpriced; calls are priced fairly:

 

The Best One-Leg Strategy

Short Put PL metrics for June 8 expiration:

 

QQQ Snapshot

QQQ has jumped to its upper band of the recent range driving RSI(14) closer to 60 level:

VXN continued its way down reflecting the diminishing QQQ options IV:

 

 

QQQ Expiration: May 18, 2018 (DTE 10)

Puts are overpriced calls are underpriced but not substantially:

 

QQQ Expiration: May 25, 2018 (DTE 15)

Mispricing of puts and calls is not statistically significant:

 

QQQ Expiration: June 1, 2018 (DTE 19)

Puts are significantly overpriced only OTM; calls are priced fairly:

 

Expiration: June 8, 2018 (DTE 24)

Puts are significantly overpriced only OTM; calls are priced fairly:

 

The Best One-Leg Strategy:

Short Put PL metrics for June 8 expiration:

 

IWM snapshot

IWM has moved higher but remains below highs of the recent months. RSI(14) demonstrates neither oversold nor overbought condition:

RVX remains near the lows of the recent months:

 

IWM Expiration: May 18, 2018 (DTE 10)

Both puts and calls are overpriced but not significantly:

 

IWM Expiration: May 25, 2018 (DTE 15)

OTM Puts are substantially overpriced, ITM puts are priced fairly; calls are overpriced but not significantly:

 

IWM Expiration: June 1, 2018 (DTE 19)

Puts are overpriced mostly OTM; calls are overpriced but not significantly:

 

IWM Expiration: June 8, 2018 (DTE 24)

Puts are overpriced mostly OTM; calls are overpriced but not significantly:

 

The Best One-Leg Strategy:

Short Put PL metrics for June 1 expiration:

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.