Do we have a good excuse for not doing this in February? No, we don't. Please, accept our virtual apologies and enjoy our predictions for the closing price of SPY on April 20, June 15, and January 18 (2013)!
Methodology
For a full primer on our methodology, please see our article predicting SPY closing prices in January. We have changed our methodology a bit in response to this article from our friends at Smart Family Finance; we now consider .5% of daily options volume on a given date to be significant, up from .2%. We are still predicting with 75% confidence. We retrieved these values after the last options expiration date (Friday). A little better now?
Put Implied Pricing
This month, puts seem to be pessimistic on the future closing prices of the S&P 500. SPY is roughly 1/10 of the S&P's price, so with the S&P 500 trading at around 1404 at the open, puts contract traders are banking on roughly a 7% drop into January. Remember, multiple these prices by roughly 10 to get an approximation to the S&P 500.
Calls are a bit more optimistic than puts on the S&P 500, with enough of a difference to predict a flat market through June, then roughly a 1.8% drop through January. Because of the effect of dividends, this means that call contract traders are pricing in roughly a flat market this year, while put contract traders are predicting a fall. Feel free to scheme a good way to make money off one of the two types!
The Accuracy of the Method
Here is the full table of 75% confidence (between the high/low). Remember, these are closing prices on the dates listed; multiple by 10 get get the S&P 500 price.
| 04/20/12 | 06/15/12 | 01/18/13 | |
| Put High | 139.8 | 137 | 134.5 |
| Put Med | 137.79 | 132.25 | 129.5 |
| Put Low | 134.06 | 128 | 119.93 |
| 04/20/12 | 06/15/12 | 01/18/13 | |
| Call High | 141.13 | 144 | 140.14 |
| Call Med | 139.22 | 140 | 137.92 |
| Call Low | 137.16 | 136.13 | 128.2 |
Perhaps we set the bar a little low after the first article we did in this series. I hope you accept our slightly tuned methodology at face value - current 75% confidence closing values, in the absence of new news. As things become more certain and we move closer to closing dates? You see the range narrow (you can even see this for our 1 and 3 month predictions versus our 10 month). This year, the greatest uncertainty is who the president will be, and if it is moving markets, you'll see ranges tighten after elections in November.
And how did we do last time? SPY closed at 136.41 on 2/17/2012, placing it above both the call and put implied predictions for 75% confidence. Yes, we could have made money if we were super optimistic! Remember, puts predicted a close between 117.91 and 167.76 (haha!) while calls predicted a close between 128.82 and 137.21 for April (we're trading above this now). Your mileage may vary...
What do you think of these predictions? Is the market too optimistic/pessimistic? Do you think the market will be flat to slightly down through January?
