All three indices finished the last week almost unchanged, again. Overall, they remain almost in the middle of the range formed in recent months. RSI(14) is still hovering around 50 mark showing neither oversold nor overbought condition.
Meanwhile, the option pricing picture has changed somewhat. Especially in the near-term expirations where prices of put options have moved closer to their Fair Values and made them priced almost fairly (for SPY and IWM).
Overall, options market seems to calm down and is coming to normal. The same force has driven the call prices down making them mostly underpriced.
Mispricing summary for the options with two to five weeks until expiration:
| Puts | Calls | |||
| OTM | ATM | ATM | OTM | |
| SPY |
Near-term expirations – Fairly priced Farther expirations – Overpriced substantially |
Fairly priced | Fairly priced | |
| QQQ | Overpriced substantially | Overpriced | Underpriced substantially | Underpriced |
| IWM |
Near-term expirations – Fairly priced Farther expirations – Overpriced |
Underpriced | Underpriced | |
Interesting opportunities remain in QQQ where puts are still substantially overpriced and calls are underpriced (bullish risk reversal strategy). Among SPY options, the only opportunity remains is selling puts with farther expirations (20-25 trading DTE). IWM has just opened an opportunity for calls buying.
To make our estimation more reliable, we filter the historical data and select from the past only those dates when the market resembled the current condition (read more here). We use three filters:
We apply auto filtering for Volatility index and RSI selecting 300 days in history with the shortest Euclidean distance to their current values.
For each underlying, we select expirations on a range of 2-5 weeks. We present mispricing charts for each expiration and basic PL metrics for the best one-leg strategy (buying or selling put or call) measured by the Expected profit (annualized).
SPY has finished the previous week almost unchanged again; RSI(14) level of around 50 shows no oversold condition.
VIX is close to its lows since February.
Both puts and calls are priced almost fairly:
Puts are overpriced but not substantial; the mispricing of calls is not statistically significant:
Puts are overpriced, especially OTM; calls are priced fairly:
Puts are substantially overpriced; calls are underpriced but not statistically significant:
Short Put PL metrics for June 1 expiration:
As with SPY, QQQ has also slightly changed for the week. RSI(14) level of around 50 shows there is neither oversold nor overbought conditions.
VXN also has not changed significantly for the week:
Put prices have moved closer to their average historical prices (green and red lines coincide) and remain substantially overpriced; calls are underpriced:
Puts are overpriced; calls are substantially underpriced:
Puts are overpriced; calls are underpriced - all very significantly:
Puts are overpriced; calls are underpriced - all very significantly:
Short Put PL metrics for May 25 expiration:
Long Call PL metrics for May 25 expiration:
IWM has also slightly changed for the week. RSI(14) demonstrates neither oversold nor overbought condition:
RVX is testing its lows for the last months:
Puts are priced almost fairly; calls are underpriced:
Puts mispricing is not statistically significant; calls are underpriced:
Puts are overpriced mostly OTM; calls are underpriced:
Puts are overpriced mostly OTM; calls are fairly priced:
Short Put PL metrics for June 1 expiration:
