You all know what time it is! It's time to parse the option trader tea leaves and guess where the options market thinks we are headed in the near to somewhat not near future. As always, we are taking options data from Yahoo, and using contracts which trade more than .5% of the daily volume to make our targets. We're also using the ticker SPY (a S&P 500 ETF) as our proxy for the S&P - all numbers you see are multiplied by 10 to get the conversion to actual closing prices.
What Does the Data Mean?
Remember, options are 3 times more difficult to trade than stocks. Stocks require you to get one thing right - direction. Even if you are incorrect, you generally have an equity which is still worth something. Options, on the other hand, require you to pick direction, magnitude and price. Oh, and they can expire worthless. That's why for the beginning to intermediate trader, it's best to use options as an indicator - not a trading device. Without further ado, let's look at the charts! (Note: Remember, a month means when options stop trading, the third Friday of the month. Click here to see the calendar.)
First up, the puts... which seem to be implying flat to slightly down. As we've noted in past editions, puts tend to be more pessimistic than calls, and July is no different.
And here are the calls... which predict flatness until around election time, then perhaps some green shoots?
Full prediction table is here:
| 2012-08 | 2012-09 | 2012-10 | 2012-11 | 2012-12 | 2013-01 | 2013-03 | 2013-06 | |
| Put High | 1390.00 | 1390.00 | 1387.36 | 1382.25 | 1381.50 | 1395.00 | 1432.23 | 1400.56 |
| Put Medium | 1367.08 | 1350.00 | 1338.27 | 1338.68 | 1331.93 | 1295.00 | 1330.00 | 1300.93 |
| Put Low | 1323.63 | 1261.87 | 1249.50 | 1225.00 | 1140.00 | 1021.46 | 1145.00 | 1148.82 |
| Call High | 1413.50 | 1437.56 | 1431.22 | 1449.49 | 1430.00 | 1425.00 | 1510.00 | 1500.00 |
| Call Medium | 1377.29 | 1380.00 | 1382.22 | 1381.56 | 1370.00 | 1379.79 | 1440.00 | 1400.00 |
| Call Low | 1348.89 | 1350.00 | 1347.84 | 1340.73 | 1350.99 | 1311.72 | 1330.00 | 1301.59 |
Past predictions are here:
Dubious Results?
As an indicator, options are quite interesting - but volatility has been killing the record lately. We'll tally everything up at the end of the year, but last month the calls got it right (almost on the nose - the 50% call was 1360 versus a close of 1362) and the puts missed it on the low side, with the 75% top coming at 1360. Perhaps another sign the market is beatable? Anyone want to discuss that?
Thoughts on the options market predictions? How do you think the elections will affect it? Any contrarian signs you can pull from this data? Want me to run the numbers with different criteria? Let me know!
