In the article, “CME Buying CBOT”, we analyzed Chicago Mercantile Exchange’s (CME) purchase of CBOT with an eye for a bullish strategy for CME. We continued the CME bull put credit spreads saga and for the month of August the strategy experienced a very nice +8.7% return. This strategy has returned over 82% in only nine months.
Last month’s CME bull put credit spreads position came the closest to backfiring, as the price of CME stock fell to 505.89 on Thursday August 16 the day before options expiration. If the price of CME’s stock had remained below 530 at the market close on options expiration on Friday August 17, then the position would have experienced a loss of -91.3. And instead of enjoying a nine-month return of 82% we would have instead the ugly experience of an -18% loss over nine months. But fortunately the price of CME’s stock recovered and closed at 543.85 on Friday August 17, which was above the 540-strike price of the short put option, and the bull-put credit spread was fully profitable.
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Even with the recent market volatility and the close call for last month, CME is still looking bullish. Using PowerOptions powerful stock options tools to search for potential candidates returned the following bull-put credit spreads stock options position:
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|CME Group Inc.|
|CNMUB||07 SEP 510.0 (26)||5.8||CNMUQ||07 SEP 490.0 (26)||3.5||13||2.3|
The bull put credit spreads positions selected for CME can be entered for $2000 per contract with a potential return of +13%, in only 26 days. As long as the price of CME remains above the short strike price at options expiration in September, the position will be fully profitable.
If the stock price of CME closes below the short strike price of $510 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 $490 at stock options expiration, the position will essentially lose everything that was invested except the initial net credit of $230/contract.
Competitors for CME include: NASDAQ Stock Market, Inc. (NDAQ), NYMEX Holdings Inc. (NMX) and LIFFE (Holdings) plc (private).
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[tags] LIFFE (Holdings) plc, NDAQ, Nasdaq Stock Market Inc., NMX, NYMEX Holdings Inc., bull-put credit spreads, investment strategy, iron condor, option income, poweroptions, selling naked puts, stock option trading, stock options [/tags]