In the article, “CME Buying CBOT”, we analyzed Chicago Mercantile Exchange’s (CME) purchase of CBOT (BOT), and in article, “CME Bull Put Spreads Strategy – Nice 5.8% in Ten Days”, we illustrated the profit potential of a bull put spreads strategy for CME and we selected positions for options expiration in January of 2007, which returned a very nice +5.8% in 24 days.
The bull put spreads strategy is a good strategy to consider when the stock price of a stock is so high, an average investor would balk at attempting a covered calls stock options position. For example, to enter a CME covered calls stock options position requires a minimum of about $59,000, but a bull put spreads strategy can be entered for much less capital.
|Chicago Merc. Exch. Hldgs. Inc. (CME) $588.90 February Expiring in 24 Days|
|CNMNH||07 FEB 540.0 (24)||3.2||CNMNF||07 FEB 530.0 (24)||2.5||7.5||0.7|
The bull put credit spreads positions selected for CME can be entered for $1000 per contract with a potential return of +7.5%, in only 24 days. As long as the price of CME remains above the short strike price at options expiration in January, the position will be fully profitable. If the stock price of CME closes below the short strike price of $540 at options expiration the position will not return the maximum profit and could potentially result in a loss, possibly a significant loss. If the stock price of CME is below $530 at stock options expiration, the position will essentially lose everything that was invested except the initial net credit of $70/contract.
Competitors for CME include: CBOT Holdings Inc. (BOT), Deutsche BÃ¶rse AG (private), and LIFFE (Holdings) plc (private).
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