CME Impresses With Record First Day Trading Volumes For New Crop Options

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CME Group (NASDAQ:CME) observed a record 2,105 short-dated new crop corn options contracts traded on the first day of trading for the product. [1] The trading volume surpassed the previous record of 1,840 soybean calendar spread options traded on the exchange on June 1, 2009. Short-dated new crop corn and soybean options started trading on June 4, and the company plans to launch trading for short-dated new crop wheat options on September 4, 2012.

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Options a Lucrative Offering for Customers

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Short-dated options are issued on a weekly basis and provide investors with means to trade options based on news or specific events which may influence the product. Options are a cost-effective tool for agricultural producer customers to manage price risk and hedge against long-term market volatility. The product proved to be very popular in the first week of trading, and we expect this trend to continue, leading to a rise in the average daily volume of commodity contracts through the Trefis forecast period.

Extended Timings and The CME Direct

CME group recently extended trade timings for grain and oilseed options and futures from 17 hours a day to 21 hours a day, in order to compete with IntercontinentalExchange (NYSE:ICE) which operates a 22-hour grain trade cycle. (See CME Extends Trading Hours for Grains and Oilseeds To Attract More Customers)

The company will also look to boost its trade volumes from its new energy brokerage platform, CME Direct, which allows energy futures and over-the-counter (OTC) swaps to be traded on one a single electronic screen. (See CME Looks To Boost Energy Contract Volumes With New Platform) Energy Contracts account for 21% of our price estimate for CME Group’s stock price.

We have a price estimate of $285 on CME Group’s stock, which around 4% above the current market price.

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Notes:
  1. CME Group Announces Record First-Day Trading Volume in Short-Dated New Crop Options, Press Release, 11th June, 2012 []