Trade of the Day: CME Group Inc (CME)

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Today I’d like to talk about bitcoin and some correlations I’ve noticed with this new asset.

One thing that’s very interesting is that the price of bitcoin tends to move in sync with the Dow, although the moves are typically exaggerated by a multiple of 50 times or so. It also tends to move higher in sync with increases in the Chinese 10-year yield, showing that the Chinese are looking to bitcoin as an alternative safe-haven asset.

I do not hold any positions in bitcoin currently, as it has gone completely parabolic, but I am interested in an indirect play. CME Group Inc (NASDAQ: CME) is coming out with bitcoin futures contracts, along with the CBOE, so here’s my bullish recommendation there:

Using a spread order, sell to open the CME Jan. 5th $135 put and buy to open the CME Jan. 5th $125 put for a net credit of about $0.50.

Note: There are several January expirations available for CME options. Be sure you are opening the weekly options that expire on Friday, Jan. 5, 2018.

This put credit spread is a bullish position that involves writing (selling to open) an option and simultaneously purchasing (buying to open) an option at a different strike price in the same underlying security. The position, or leg, of the spread trade that you sell gives you a cash credit to your trading account. The option you buy limits your risk and lowers your margin requirement for the trade.

This is a bullish trade in which you want the underlying share price to stay above the upper strike price of the spread. In this case, we want CME to stay above $135 through the Jan. 5 expiration. If it breaks that level, you’ll want to get out — but, with CME at about $152, this looks like a strong bet.

Ken Trester is editor of the popular Maximum Options trading advisory. If you act now, you can take advantage of our limited-time $29 for 2 months Holiday Savings Special. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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