SPY and QQQ have been fluctuating in narrow ranges near their local highs. IWM has broken up the resistance level of its recent highs and continued its short-term uptrend entering the overbought territory. Volatility indices have been staying at their lows since January.
Options on SPY demonstrate a quite significant mispricing: puts are mostly overpriced, especially in farther expirations, while calls are underpriced. Options on QQQ are priced mostly fairly except for the puts in farther expirations. IWM demonstrates a mixed picture for the various moneyness and expirations.
Mispricing summary for the options with two to five weeks until expiration:
| Puts | Calls | |||
| OTM | ATM | ATM | OTM | |
| SPY |
Near-term expirations – Overpriced Farther expirations – Overpriced substantially |
Underpriced | Fairly priced | |
| QQQ |
Near-term expirations – Fairly priced Farther expirations – Overpriced |
Fairly priced | Fairly priced | |
| IWM |
Near-term expirations – Fairly priced Farther expirations – Overpriced |
Near-term expirations – Underpriced Farther expirations – Fairly priced |
Overpriced | Fairly priced |
Major opportunities are observed mostly in short puts and long calls on SPY. IWM long puts and short calls (both ATM) can be considered as a directional play for those who expect a downward correction.
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:
For SPY and QQQ, we apply auto filtering for Volatility index and RSI selecting 300 days in history with the shortest Euclidean distance to their current values. For IWM, we use manual filtering since the current regime is not typical due to the relatively low implied volatility (RVX index).
For each underlying, we select expirations on a range of 2-5 weeks and present options Fair Values and Market Prices, both historical (red line) and current real-time (green line). The market prices of these two types can sometimes diverge from each other if the current market condition (volatility surface) differs from its average state in the history.
SPY has been fluctuating around the recent local highs in the narrow range; RSI(14) is above 60 level demonstrating slightly oversold condition.
VIX stayed near its lows since January this year, reflecting the quiet market conditions:
Puts are overpriced, calls are underpriced but both not significantly:
Puts are overpriced especially OTM; calls are underpriced:
Puts are substantially overpriced; calls are underpriced: Market prices are adjusted for the June 15 dividend
Puts are substantially overpriced; calls are underpriced. Market prices are adjusted for the June 15 dividend
QQQ has also been staying within the narrow range near the local highs; RSI(14) shows slightly overbought conditions:
VXN has been staying at the lows since January this year:
Both puts and calls are priced fairly:
Both puts and calls are priced fairly:
Puts are overpriced mostly OTM; calls are priced fairly:
Puts are overpriced mostly OTM; calls are priced fairly. Market prices are adjusted for the June 18 dividend
After the upward breakout, IWM has continued its way up posting its all-time high levels; RSI(14) has entered the overbought area:
RVX has been staying near its lows since January:
OTM puts and calls are priced fairly; ATM puts are underpriced:
OTM puts are priced fairly, ATM puts are underpriced; ATM calls are overpriced but not significantly, OTM calls are priced fairly
OTM puts are overpriced, ATM puts are slightly underpriced; ATM calls are overpriced, OTM calls are priced fairly:
OTM puts are overpriced significantly, ATM puts are priced fairly; calls are overpriced:
