CME’s Expanded Options Offerings Help Stock Reach $320

July 6th, 2011 by Trefis Team
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The CME Group (NASDAQ:CME) has added three new short-term options contracts for gold, crude oil and natural gas to its already comprehensive line up of offerings. [1] The CME Group is the one of the leading and most diversified players  with a wide range of products across all major asset classes including interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. The newly added contracts will begin trading on July 16, 2011. The CME Group competes with NYSE Euronext (NYSE:NYX), Nasdaq OMX (NASDAQ:NDAQ) as well as others like BATS Global and Direct Edge.

We have a price estimate of $323 on CME Group’s stock, which is almost 15% above the current market price.

The Demand for Short Term Contracts is Growing…

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Market participants have long felt the need to manage their risk on a day-to-day basis. Recent global macroeconomic events and increased market volatility have further fueled the demand for short term contracts. According to Mike Prokop – Managing Director of the CME Group’s Energy Products division – there is a specific interest among customers for short dated options which allow them the flexibility to execute a variety of trading strategies over shorter time periods. ((CME Group Announces the Launch of Three New Short-Term Gold, Crude Oil and Natural Gas Options Contracts, CME Group))

… which will Boost Trading Volume

The short term gold options contracts will help market participants manage risks associated with economic data pertaining to governments, world events and other market-moving factors better. The short term crude oil and natural gas options contracts are expected to help manage risks associated with weather anomalies and regional crude oil & natural gas storage data, besides other macroeconomic factors.

We expect the CME Group’s average daily volume of energy contracts to almost double over the next 5 years – reaching 3.3 million from its current value of 1.7 million. These new additions to CME’s portfolio will no doubt lend this growth a hand.

See our complete analysis of CME Group.

Notes:
  1. CME Group Announces the Launch of Three New Short-Term Gold, Crude Oil and Natural Gas Options Contracts, CME Group [↩]