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

January 6th, 2013 by 
PK

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).

2013-012013-022013-032013-042013-062013-092013-122014-012014-122015-012015-12
Put High1457.5146514501468.11461.241392.471511.281432.6214251493.131507.79
Put Medium1449.8144014001419.21400.341321.0913951341.921017.331391.611307.57
Put Low1430137013501251.7312551081.091258.851182.548251015.63811.19
Call High1490150515101512.051542.32168015401570.2318751501.771750.76
Call Medium147014651460.191458.14147015501462.061499.7114751439.551475
Call Low145014601420.5313951432.2714901409.131451.8701342.711388.62

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

      

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK lives in New Hampshire with his wife, kids, and dog.

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