Option Trading Idea for CME Group (CME)

06/25/2010 12:01 am EST

Focus: OPTIONS

The finalization of the new sweeping FINREG bill is imminent. Deputy Treasury Secretary Neal Wolin seems to be extremely confident that these new laws will be delivered, polished, and signed into law, maybe by Independence Day.

Regardless of when it is complete, part of the new regulation is to increase transparency for capital requirements and standardize the clearing practices of derivative products, perhaps through an exchange. One of the exchanges perhaps best suited for this is CME Group (CME), which has been selling off along with the market during the past week or so.

Technically, the stock is fairly close to support around $291 and may be forming a bullish double bottom. If you want to take a low-risk bullish position ahead of the FINREG release, the idea-generating platform (IGP) has located a bull put spread in July.


Click to Enlarge

CME Credit Spread Trade Details (Be sure to update strategy based on current pricing):

CME was down roughly $4.33 yesterday morning at $296.24

Credit Spread/Bull Put Spread:

  • Sell the July 280 put
  • Buy the July 270 put
  • Net credit of $1.80 per spread ($180 per lot) or better

Profit/Loss Details

Maximum Profit: $1.80 (the credit collected)
Maximum Risk: $8.20 (the difference between strikes minus the credit collected). Return on risk is approximately 22%
Breakeven: $278.20 (the strike of the short put minus the premium)

By the Staff at ONN.tv
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