Chicago Mercantile Exchange Holdings (NYSE:CME) offers market participants the opportunity to trade futures contracts and options on futures contracts, primarily in four product areas, including interest rates, stock indexes, foreign exchange and commodities. CME's key products include Eurodollar contracts and contracts based on United States stock indexes, including the S&P 500 and the NASDAQ-100. The CME also offers contracts for the principal foreign currencies and for a number of commodity products, including cattle, hogs and dairy. Its products provide a means for hedging, speculation and asset allocation relating to the risks associated with interest-rate sensitive instruments, equity ownership, changes in the value of foreign currency and changes in the prices of commodity products. CME's customer base includes professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, supranational entities and governments.
The CME is the largest U.S. futures exchange and the demand for its products is increasing. In April, the exchange crossed more than 100 million futures and options contracts for the first time in its history, with monthly volume up 47% for the year. CME's chief executive, Craig Donohue, believes that long-term trends in the financial markets, including the rise of hedge funds, favor growth in derivatives trading because they are essential tools for portfolio managers, investment bankers and corporate treasurers. In addition, he noted the Federal Reserve's methodical implementation of monetary policy over the past year has benefited CME by fueling growth in Eurodollar futures, the world's busiest futures contract.
Considering the company's solid fundamental outlook and its recent technical strength, this position offers reasonable profit potential with acceptable capital risk. Despite the near-term bullish trend, CME remains a volatile issue and the daily gyrations in the stock price should allow traders to initiate the recommended spread at the target credit.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bullish/credit spread):
BUY PUT JUN-180.00 CME-RP OI=131 ASK=$0.60
SELL PUT JUN-185.00 CME-RQ OI=781 BID=$0.90
INITIAL "NET-CREDIT" TARGET = $0.40-$0.50
POTENTIAL PROFIT (X 5 contracts @ $0.40) = $200
MARGIN REQUIREMENT (X 5 contracts) = $2300
RETURN ON INVESTMENT (max) = 8.7%
COST BASIS = $184.60
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($185.00) put options if the stock moves below $187.50 on an intraday basis. A "net-debit" order of $1.10-$1.20 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.