As traders, we know who the national stock exchanges are. As middlemen, they allow us the opportunity to invest or speculate in publicly traded companies and other asset classes. Right now though, Nasdaq Inc (NASDAQ:NDAQ), CBOE Holdings, Inc (NASDAQ:CBOE) and CME Group Inc (NASDAQ:CME) are setting up as various investments in their own right.
If you’re like me, the stock exchanges are typically an afterthought, if anything at all when it comes to your investment strategies. That is, unless you happen to be a high frequency trader.
It should be remembered though, stock exchanges are businesses with the same prospects and concerns of any asset listed within the confines of each one’s walls — whether that’s a relic-like, physical trading floor or a boatload of servers set up in a remote facility more secure than Fort Knox.
More to the point, whether you’re a long-term investor, swing trader or a rarer and less frenetic (these days) daytrader — NDAQ, CBOE and CME can be easily bought or shorted and/or positioned with calls and puts.
Let’s take a closer look, both on and off the price charts at NDAQ, CBOE and CME and see what investment and or trading opportunities exist right now in each of these stock exchanges.
Stock Exchanges to Trade: Nasdaq (NDAQ)
Click to Enlarge If you’re a relic like me, who did actually trade on two of the country’s stock exchanges “way” back in the day, you’ll know that Nasdaq is remembered as the first-mover in electronic trading. In fact, on the Nasdaq, there never was an actual trading floor where market makers or specialists could physically congregate.
This stock exchange was also associated as a pioneer by listing high-flying and then unknown tech companies like Microsoft Corporation (NASDAQ:MSFT) or Apple Inc. (NASDAQ:AAPL) while investors were still calling in their buy and sell orders from a telephone to their broker’s answering machine.
Now, however, it’s time to hit the “buy” key in NDAQ shares using your mobile, iPad or Surface Pro. Nasdaq looks great as a pullback opportunity within a favorable uptrend on the weekly price chart.
Sure, this stock exchange has enjoyed a nice run the last couple years and may not have found technical support just yet, but as they say, “the trend is your friend.” Such trends can last longer than investors think possible.
Checking the options board and mindful of an imminent earnings release for NDAQ, I like the Dec $62.50 married put for $66.70. The long stock, long put position offers guaranteed protection at $62.50 from the purchased put. We chose this strike as it’s near key chart support in NDAQ.
Importantly, this NDAQ spread also keeps the max risk exposure to 6% for the next couple months and maintains an open profit profile on the upside if the stock exchange’s uptrend reasserts itself.
Stock Exchanges to Trade: CBOE Holdings (CBOE)
The CBOE is actually known as an options market operator and not a stock exchange. However, that could be close to changing.
Click to Enlarge CBOE is looking to acquire electronic exchange Bats Global Markets Inc (BATS:BATS) in a $3.2 billion deal by next spring. According to Barron’s, a merger could provide a radical transformation and prove a huge boon for CBOE and makes this a name to buy on any weakness.
We couldn’t agree more with Barron’s. As the chart suggests, that day of reckoning appears to be unfolding. Other investors have been less enthusiastic about the apparent synergies of this still pending deal and CBOE shares are currently below 200-day simple moving average and just barely breaching a long-term, trendline support.
In this situation, thinking the weakness may not be over just yet, but not minding the purchase of shares at lower levels due to deal’s underlying value to the CBOE franchise, the Dec $60/57.50 bull put spread is attractive.
Priced at 40 cents with shares at $63.50, the trader receives the full credit as long as shares are above $60 at expiration. That allows for a decent size decline in CBOE of 5.5%. Earnings however, scheduled for next Friday could force that type of move in short order.
Below the sold $60 strike the trader has the opportunity to take possession of CBOE stock through assignment and essentially become a buyer on weakness. What’s more, in the event that no longer looks as appealing, risk with this spread is limited no matter what may transpire in the future.
Stock Exchanges to Trade: CME Group (CME)
Click to Enlarge CME Group is our third market operator of interest. Similar to CBOE, CME handles options trading and isn’t a stock exchange in the literal sense. CME is also a massive player in the futures markets ranging from foreign exchange, interest rates, agriculture, energy and other commodities.
CME is the 800 lb. gorilla of the group with a market cap of around $36 billion versus CBOE’s $5.0 billion and NASDAQ’s $10.0 billion.
Likewise, on the price chart following a fairly staunch year and one-half correction, CME is looking the fiercest technically of the three exchanges. Our view is the current pullback may not be fully done, but CME appears to be within a couple percent of key support that should have no problem finding buyers.
Reviewing CME’s options, the Dec $100/$105 bull call spread has our interest. With shares at $103.50, this spread fetches $3 mid-market.
Currently, the pricing means at expiration this bullish CME trader would make 50 cents, or a return of 17%, as the spread would simply expand to $3.50. And if shares rally less than 2%, a return of nearly 70% ($2) is captured above $105 at expiration.
Unlike generating income with a strategy such as a buy-write, which has a good deal of stock risk, this spread’s risk is limited to the $3 paid. And given this stock exchange also reports next week that relationship is worth considering.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.