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.
This is the second position we have offered on the Chicago Mercantile Exchange in the past month and based on last week's upside activity, the issue will continue to be a favorite among option traders in the near future. Shares of CME jumped almost 15% on Thursday and Friday in the wake of the company's announcement that it will hike trading fees for members across all product lines for the first time since 2000. The move is expected to increase revenue for the largest U.S. futures exchange and investors showed their appreciation of the plan by pushing the stock to a new "all-time" high. 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 (very conservative - bullish/credit spread):
BUY PUT JUL-200.00 CMJ-ST OI=64 ASK=$0.70
SELL PUT JUL-210.00 CMJ-SB OI=305 BID=$1.25
INITIAL "NET-CREDIT" TARGET = $0.65-$0.70
POTENTIAL PROFIT (X 5 contracts @ $0.65) = $325
MARGIN REQUIREMENT (X 5 contracts) = $4675
RETURN ON INVESTMENT (max) = 6.9%
COST BASIS = $209.35
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($210.00) put options if the stock price moves below $215.50 on an intraday basis. A "net-debit" order of $1.30-$1.40 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.