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):
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?
