Companies that charge a small fee every time their service is used are called toll takers. The CME Group is a toll taker. They charge a fee every time a futures contract is bought or sold.
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CME - CME Group - Company Profile
CME Group Inc., operates contract markets for the trading of futures and options on futures contracts worldwide. The company offers a range of products across various asset classes, based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, and metals. Its products include exchange-traded; and privately negotiated futures and options contracts and swaps. It executes trade through its electronic trading platforms, open outcry, and privately negotiated transactions, as well as provides hosting, connectivity, and customer support for electronic trading through its co-location services. The company also provides clearing and settlement services for exchange-traded contracts, as well as for cleared swaps; and regulatory reporting solutions for market participants through its global repository services in the United States, the United Kingdom, Canada, and Australia. In addition, the company offers a range of market data services, including live quotes, delayed quotes, market reports, and historical data service, as well as index services. CME Group Inc. serves professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, governments, and central banks. The company was formerly known as Chicago Mercantile Exchange Holdings Inc. Company description from FinViz.com.
The Chicago Mercantile Exchange is in the right place at the right time. Trading in commodity and futures contracts of all kinds is exploding. On December 1st the volume of energy futures contracts hit a record 4.5 million contracts. That broke the prior record of 3,832,201 contracts from February 11th. With crude futures in the spotlight after the OPEC production cuts and prices changing rapidly, that record is not going to last long. On November 11th the CME set a new record for single-day volume in all contracts of 44,516,949 contracts. The prior record was 39,567,064 so that was a major beat. Globex electronic contracts traded 39,997,534 contracts, also a record. The CME collects a fee on every contract traded.
Earnings in 2016 are expected to be at record levels and 2017 is likely to be even higher.
Earnings January 26th.
The equity volume over the last month has been huge and futures volume is keeping pace. The CME is expected to post strong earnings so there is likely to be some run up into the event, market permitting.
Shares spiked back in early November after the CME declared a 60 cent dividend payable Dec 29th to holders on Dec 9th. We are already past that date and the stock did not decline materially. That was also when they announced the record contract volume.
Going long ANY stock over the next three weeks is risky. However, any selling should be muted because taxes are expected to be lower in 2017 so most heavy hitters will be holding until January to get the benefit of any lower tax rate. At least that is the theory.
With a CME trade at $123.50
Buy March $125 call, currently $2.75, initial stop loss $119.75.
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