Predicting the S&P 500 Closing Price – January 2013 Edition

Wow, we haven’t done one of these for a while.  And what are these, you may ask?  A weird little property of options pricing, actually – you can back out predicted prices of a stock on a particular day by simply looking at options prices.  The ‘most likely’ price, at least dictated by the market, should be priced in a particular way.

In theory, all of that sounds great – but in practice?  It’s a little different.  So, here’s what we’re going to do – we’re going to reveal what options are implying for future S&P 500 closing prices today.  Then, later this week, we’re going to review all of the predictions our model made last year.

Predicting the S&P 500

When we make these predictions, we are targeting a 75% rate – as in 75% of the time the S&P should close between the bounds (12.5% of the time it should end above and 12.5% below).  We consider a contract to be significant (i.e. not noise), if it trades at least .5% of daily volume for that closing date. We also screen based on open interest – it must be above .02% of total open interest for us to count it.  We use contracts on the ETF SPY, an exchange traded fund which tracks the S&P 500.  We retrieved them today – things may change tomorrow.

That said, here’s what the options market implies from here through 2015 (and yes, calls have a hitch in December 2014 – go exploit that, haha):

call-jan-2013

put-jan-2013

Table Format, for Easy Digestion

Don’t like the chart?  We’re here to bail you out – here’s the data dumped into a table so you can either adjust your own expectations, or bet against the odds being presented (more on that Wednesday).

2013-01 2013-02 2013-03 2013-04 2013-06 2013-09 2013-12 2014-01 2014-12 2015-01 2015-12
Put High 1457.5 1465 1450 1468.1 1461.24 1392.47 1511.28 1432.62 1425 1493.13 1507.79
Put Medium 1449.8 1440 1400 1419.2 1400.34 1321.09 1395 1341.92 1017.33 1391.61 1307.57
Put Low 1430 1370 1350 1251.73 1255 1081.09 1258.85 1182.54 825 1015.63 811.19
Call High 1490 1505 1510 1512.05 1542.32 1680 1540 1570.23 1875 1501.77 1750.76
Call Medium 1470 1465 1460.19 1458.14 1470 1550 1462.06 1499.71 1475 1439.55 1475
Call Low 1450 1460 1420.53 1395 1432.27 1490 1409.13 1451.87 0 1342.71 1388.62

So, what are you predicting for the year?  Direction, magnitude?  Anything you want to know about the model?

Comments

  1. Brick By Brick Investing says

    Interesting, I look forward to seeing how this plays out. I have never heard of this strategy before.

    • says

      Yeah, for all I know I invented it – it’s a sort of play on implied volatility,but not quite. Still, the predictive power isn’t that great… take a look at the spreadsheet on today’s post.

      Since the predictive power is weak (worse than a coinflip!), perhaps it’s better to disagree with the predictions and, well, make money off them?

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