CBOE Holdings: Zacks’ Bull of the Day Play

CBOE Holdings (CBOEAnalyst Report) saw EPS estimates rise ahead of what is expected to be a strong quarter for volumes at the landmark options exchange.

To veteran investors and traders this makes sense. We’ve had a rise in market volatility and that usually leads to option protection seeing increased demand.

And since CBOE owns the VIX suite of products, including VIX futures and options, volumes are breaking records left and right at the exchange.

Average daily volumes (ADV) in VIX options, VIX futures, and SPX options all set quarterly records and were up at least 39% quarter-over-quarter and 32% year-over-year.

From the looks of the Zacks Proprietary Price & Consensus chart, it seems the smart money was anticipating this turn-around in volumes and earnings as the stock reversed higher and ran even before the estimates bottomed…

One of the reasons that EPS estimates fell in the first half of the year was that option volumes were tracking below 2014 as the broad market went sideways in a narrow range for many months. The chart below from the TABB research group, using OCC (Options Clearing Corporation) data, shows the “volume comps” for all listed equity options…

What we know about CBOE volumes specifically is that August of this year was 26% stronger than last year, while September slipped only 5% vs the year-ago quarter. This shapes up for a healthy Q3 earnings report at the end of this month.

What About Futures?

CBOE Holdings has been strengthening its position in the futures business. Over the past years, CFE has significantly expanded its operations buoyed by something of a moat around its VIX products. Total average daily volumes at CFE have surged at a four-year (2009–2013) compound annual growth rate (CAGR) of about 137.7%, followed by 26% growth in 2014, thereby reflecting robust escalation through market recovery and product expansion.

In Oct 2013, CBOE Holdings extended the trading hours for its VIX Index futures to meet the demand from both the U.S. and European markets. Overall, average daily volumes for VIX Index futures also improved 27% year over year in 2014, driven by heightened volatility and expanded global customer base. During the second quarter of 2015, VIX Index futures average daily volumes grew 11% year over year.

CBOE Holdings continues to innovate in both products that institutions want and in the technology they need to transact business efficiently. While some analysts believe the shares are fully-valued near $70, buying this one of kind company on stock dips into the low $60s seems like a favorite option of investors this year.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s