Predicting the S&P 500 – May 2012 Edition

Posted By PK Last updated May 22nd, 2012 7 Comments

We’ve got this running series on Don’t Quit Your Day Job where we use the currently trading option prices (puts and calls) to divine where the market believes the S&P 500 is going over the next months. Normally, this is a problem we attack right after options expiration days (which happened to be on Friday), but as we had an issue with the script and prior commitments, you guys will have to accept our homework 2 days late.

As always, our predictions try to capture a 75% chance that the closing price of the S&P 500 will fall between the upper and lower boundaries given (see the bottom of the post for previous entries). So, with all that in mind, here is how the market, as of May 22nd, 2012, thinks the S&P 500 will close on a few selected dates. For the record, the index closed at 1,316.63 today.

Call Contracts Implied Closing Prices

5.22

Put Contracts Implied Closing Price

Past Predictions

Also, for the record, the predictions made in the last article were wrong for both calls and puts (we came in under – 1295.22 was the close Friday). The jury’s still out on how this method will do, but we can assure you we’ll track all year! Below we’ve reproduced the full closing price predictions – remember, this is the market’s prediction that 75% of the time it will fall in the range. Use this information in your models, but don’t blame me if things don’t go your way!

	05/18/12	06/15/12	07/20/12	08/17/12	09/21/12	12/21/12	01/18/13	03/15/13
Put High	1339.68	1330.04	1341.56	1321.52	1320.79	1350	1351.72	1361.57
Put Med	1312.69	1290	1282.57	1260.76	1261.49	1275	1297.66	1301.54
Put Low	1282.7	1242.68	1182.06	1140.21	1140	1111.86	1091.54	1100
Call High	1330.52	1370	1377.59	1380.74	1390	1442.14	1429.76	1430
Call Med	1312.9	1330	1320.34	1327.3	1330	1330	1311.14	1332
Call Low	1289.71	1290	1280.29	1287.68	1281.74	1130	1181.64	1100

And links to our previous articles:

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http://www.facebook.com/profile.php?id=100002637635109 Frugal Toad

I wonder how the Greek debt crisis will effect the US equity Markets? It looks like voters may reject austerity measures and pull out of the EU. That would not be good!
- http://www.dqydj.net/ PK
  
  I guess it depends on what the most likely scenario is now – which is probably Germany capitulating to the demands of Greek’s new ruling coalition. If it is worse? I don’t know – maybe US Bonds benefit, at the expense of our stocks. Better? Perhaps stocks get a jolt.
  
  Either way, I think most of the reaction is priced in already (the spread gets wider with time since the future is uncertain). I think, for the most part (at least in the short term) European problems actually help us and our currency. Strange times!
  - JT
    
    Funny how that works. When it comes to the sovereign debt markets, it’s all about who looks the least awful. Cheers to low rates from European cash flowing to dollars!
http://www.niterainbow.com/ Financial Independence

The markets are going down on the Greece uncertainty. I used this opportunity to grab some of the equities yesterday. Will be on look out for more.
- http://www.dqydj.net/ PK
  
  Yeah – like I said in the comment below, I’m wondering how much is priced into the options now – The Upper 37.5% is pretty tight in the graphs, while the lower 37.5% has a much bigger spread – I’m reading that (and I’m no expert because I’ve only been looking at this since January) as a much bigger downside risk than upside.
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Predicting the S&P 500 – May 2012 Edition

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