Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
Have a stock YOU want us to review? Email my team here.
Hey Traders,
The hottest thing in options trading is SPX 0DTE options – traders cannot get enough of them.
They’re trading about 40% of all SPX option volume.
Another index option traders clearly care about is the VIX – VIX options volume is picking up.
Then they are all closely watching options on the mega cap companies and how they trade: names like AAPL, MSFT, TSLA, and, of course, NVDA, which reported earnings on Wednesday…
But there’s one company that relates to just about everything an options trader is paying attention to …
Cboe Global Markets (Ticker: CBOE).
That’s right. This week I’m looking at the old stomping grounds for me, Licia, and Andrew.
Is CBOE a good buy? Or is it time to short this sucker?
Here is my analysis
The Good
SPX: 0DTE options have exploded, and SPX has been the beneficiary. SPX is a product exclusive to CBOE.
Daily option trading began almost 1 year ago to this date. You can literally see the jump in volume in the chart:
2 years ago, SPX did about 1-1.5 million contracts a day. Now 2.25 million is a slow day – 0DTE has blown up.
Then there’s the VIX. While the options trading has leveled off with VIX back in the teens, there’s been an increase in volume. Again, you can see it:
And the futures volume is likely primed to increase. The addition of VIX ETP’s SVIX and UVIX are going to really benefit futures volume in the coming years. I expect SVIX and UVIX to increase volume in VIX futures by 10% over the next year.
I am not going to comment on leadership because I am biased, and these people are my friends …
But I’ll just say I like them.
On the equity side, CBOE continues to get a decent amount of volume, and the merger with BATS Global has been a success.
The Bad
The Valuation: the CBOE trades with an EPS of 49.83, mostly because traders see them as a potential take out target.
CME Group (Ticker: CME), for instance, trades at a PE of 23 – much more reasonable.
Then there’s the growth in SPX. As I said in my video a few weeks back, I believe there might be a Gamma Bomb coming. If that happens it could really put a dent in volume – the type of dent that could take years for CBOE to recover.
If that does happen – and I think it will – CBOE is going to be trading below $100 a share.
Check out to what happened to CBOE’s stock the last time something like this happened:
This is a legit risk.
The Verdict
I love the people that work there and the company personally, but this is not a company I would buy unless you think a buyout happens before the Gamma Bomb.
Questions about that? Leave a comment below!
Your Only Option,
Mark Sebastian