3TL Alert: CBOE Global Markets (CBOE)

By Jim Pearce • December 14, 2017

TRADE INSTRUCTIONS

Date: December 14, 2017
Name: CBOE Global Markets
Symbol: CBOE (NSDQ)
Type: Short Sale or Long Put
Limit: N/A

Reminder: 3TL stand for 3-Time Loser, which means this alert is for a stock that I believe is at risk of declining in value soon so the appropriate trade would be either a short sale or long put, but DO NOT GO LONG! And since you can play it a number of ways with put options in terms of strike prices and expiration dates I’m leaving it up to each of you to decide what, if anything, you want to do with it.

For that reasons it will not be tracked in our portfolio. This trade is not a substitute for our usual buy recommendation, but is simply an extra “bonus pick” for you to consider. Here’s why this stock qualifies as a 3-Time Loser according to my system.

TRADE RATIONALE

In short, this is a way to play bitcoin without having to go through the hassle of actually trading the cryptocurrency. If Bitcoin suffers a big decline within the next month or two, as I suspect that it will, then CBOE should also take a hit since it began trading contracts on it earlier this week.

Like most of my 3TL trades, CBOE earns the lowest possible score of ‘0’ (on a scale of 0 – 10) from my IDEAL Stock Rating System. CBOE is currently “priced for perfection” at more than 30 times forward earnings, which makes it more expensive than a lot of high-growth tech stocks (e.g., GOOG, MSFT, FB)

CBOE has gained 65% over the past twelve months as the stock market soared to record highs. However, net income dropped more than 10% during the most recent quarter while operating cash flow declined by more than 90%. When a stock price is going one way while net income and cash flow are heading the other direction, reversion to the mean is usually not far behind.

Doubtless, there will be an uptick in this month’s revenue from bitcoin trading, but expectations are so high that even a modest disappointment could push the stock down towards its lower Bollinger Band near $116.

Stock Talk

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Derek: Las Vegas, NV

12/14/17 ‐ 12:22pm ET December 14, 2017 at 12:22pm ET

Sorry, Jim, but I hope your wrong on this one. At least for another week, which is when my bullish position should hit my profit target. However, I do like your trade rational, so I’ll check to see where we stand mid week and maybe I’ll get in at that time.

Derek

Jim Pearce

12/14/17 ‐ 12:47pm ET December 14, 2017 at 12:47pm ET

You’re probably okay for the next week, but I wouldn’t hang on to that bullish position into January. btw, are you bullish on bitcoin or CBOE? (I know Jim F. has a put credit spread on CME, not CBOE, expiring tomorrow, but I assume you are referring to another trade).

Derek: Las Vegas, NV

12/14/17 ‐ 1:12pm ET December 14, 2017 at 1:12pm ET

I’m not in the CME trade, so yeah, it’s CBOE. Trend, price action and a few other indicators that I use flashed a buy early this week, but it’s only a short-term trade and I expect to be out sometime next week. I agree, and don’t expect to be holding into January. I definitely want to be on the other side going into earnings on 2/5, which is when your rational will probably play out, if not sooner.

Derek

Derek: Las Vegas, NV

12/19/17 ‐ 1:37pm ET December 19, 2017 at 1:37pm ET

Profit target was met today. So, I’ll start to look at playing the other side…

Derek

Jim Pearce

01/02/18 ‐ 3:28pm ET January 2, 2018 at 3:28pm ET

So far, so good. Today’s price action may be telling; SPY up 0.6%, CBOE down 1.7%.

Derek: Las Vegas, NV

01/06/18 ‐ 2:52am ET January 6, 2018 at 2:52am ET

I still haven’t entered the trade, waiting for a full bar close below my support level. I almost got in on 1/3, but again it bounced back up off support. I still hope to be in by earnings, it’s just been such a strong week.

Derek

Freddie

12/25/17 ‐ 11:36pm ET December 25, 2017 at 11:36pm ET

i decided on a march 125/115 put spread for a 3.40 debit. thanks jim

Rick

12/26/17 ‐ 12:45pm ET December 26, 2017 at 12:45pm ET

Jim,

I went with a Call Credit Spread

BTO Feb 18 $130 Call at $1.96
STO Feb 18 $125 Call at $3.75
So net credit of $1.79

Jeffrey J

01/26/18 ‐ 3:29pm ET January 26, 2018 at 3:29pm ET

I entered that same exact trade, but did it earlier, on 12/20/17, for a NC of $1.90.
Let’s hope the earnings report on 2/5 brings it down!

Benny K

01/10/18 ‐ 3:05pm ET January 10, 2018 at 3:05pm ET

Hi Jim,
Just wondering if you think your trade rationale on CBOE wil still play out given its recent surge. I got in with a March 120/125 put spread when the alert came out and am wondering if this would be a good time to jump in again.

Jim Pearce

01/11/18 ‐ 10:18am ET January 11, 2018 at 10:18am ET

Hi Benny. Although I was mostly correct in my expectation for Bitcoin to drop in value (down approx. 10% since this alert was issued), so far CBOE has been affected by it. It appears to be reacting to last year’s trading volume figure that the company released last week (https://finance.yahoo.com/news/cboe-global-markets-reports-trading-184500712.html), but my thesis for this trade was less than expected trading volume in Bitcoin this year. So yes, I think this may be a good time to jump in again.

Dramatic License

01/11/18 ‐ 2:58pm ET January 11, 2018 at 2:58pm ET

I held off on this one, but decided to go in with it. March 15 $130 Put for $3.50.

Dramatic License

01/11/18 ‐ 2:58pm ET January 11, 2018 at 2:58pm ET

Make that March 16 😉 .

Benny K

01/11/18 ‐ 3:42pm ET January 11, 2018 at 3:42pm ET

Decided to get in with a 130/135 March 16 put spread.

Dramatic License

01/17/18 ‐ 2:15pm ET January 17, 2018 at 2:15pm ET

Any thoughts here? Shouldn’t today have been a good day for it to dip with Bitcoin taking such a large hit? Kind of been middling.

Jim Pearce

01/22/18 ‐ 10:44am ET January 22, 2018 at 10:44am ET

I have to admit that I am confounded by CBOE’s price action given the huge drop in bitcoin’s value since I issued this alert five weeks ago. I expect trading volume in bitcoin futures contracts to subside in the months to come now that its meteoric rise has reversed, something CBOE may address in the forward guidance accompanying its quarterly earnings release in two weeks.

Dramatic License

01/22/18 ‐ 10:53am ET January 22, 2018 at 10:53am ET

Thanks for the reply, Jim. This makes some sense. Would love to see a healthy drop. 🙂 I have options till 3/16, so perhaps after earnings things will go down.

Jim Pearce

02/06/18 ‐ 10:08am ET February 6, 2018 at 10:08am ET

Looks like we finally got the “healthy drop” you were hoping for! CBOE is down $10 this morning, trading below $121 as of 10 a.m.

Jim Pearce

02/06/18 ‐ 10:21am ET February 6, 2018 at 10:21am ET

Check that, now below $119 twenty minutes later, dropping like a stone. The company is due to release its next quarterly report this Friday, so it seems someone is afraid of what the news will be.

Benny K

02/06/18 ‐ 10:33am ET February 6, 2018 at 10:33am ET

Thanks for the nice trade Jim. Closed my positions this AM for 75% gain.

Jim Pearce

02/06/18 ‐ 1:49pm ET February 6, 2018 at 1:49pm ET

You’re welcome. You had the guts to stick with this trade so you deserve to be rewarded. Well done!

Jim Pearce

02/09/18 ‐ 10:15am ET February 9, 2018 at 10:15am ET

Holy Moly, I thought CBOE would drop after issuing its quarterly earnings report this morning (https://finance.yahoo.com/news/exchange-operator-cboes-profit-misses-130706506.html), but I honestly was not expecting the kind of bloodbath that has occurred over the past week. Since last Thursday, its share price has dropped from above $136 to below $100. I don’t know if any of you have any open put positions on CBOE, but if you do then this may be the day to close them out!

Chee L.

02/09/18 ‐ 10:20am ET February 9, 2018 at 10:20am ET

Hi Jim, I’ve closed out 4 of 6 contracts at a nominal 5 cents this morning. Waiting for the remaining 2 contracts to close out at 5 cents as well. Good call and thanks for the nice profits!

Chee L.

02/09/18 ‐ 10:31am ET February 9, 2018 at 10:31am ET

BTW, I sold bear calls instead of buying bear puts (thus the 5 cents to close). Feb 125/130 and Mar 130/135 for credits between $2 and $2.46. Held (and added) them all the way through since end Dec. Thanks.

Jim Pearce

02/09/18 ‐ 10:36am ET February 9, 2018 at 10:36am ET

I was wondering about that. Nice trade!

Dan

02/09/18 ‐ 2:39pm ET February 9, 2018 at 2:39pm ET

Way ahead of you Jim. I had 120 puts for March and 2nd round of 120 puts for June after it moved the wrong way. I’m on the west coast so I was up at 5:30am for the earnings report and watching the stock at 6:30am as the market opened.
I saw the earnings report of a small miss but no mention of a bitcoin trading loss that we were hoping for. Price started moving from 104 to 106 as the market opened and I exited my positions for a 445% combined profit (actually had to some math for that one). So I missed the under $100 dive it did about an hour after market. It’s back over 105 as of this writing appears to be moving a lot today.
Amazing recommendation Jim. Definitely paid this year & next year’s subscription fees :).
Thanks!

Jim Pearce

02/09/18 ‐ 2:46pm ET February 9, 2018 at 2:46pm ET

I LOVE hearing stories like that. Good work!

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