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CME Group Sees a Barrage of Bearish Options Activity

CME's front-month put volume received a boost from bearish traders

by 3/13/2012 11:32 AM
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CME Group Inc. (CME - 271.59) was deluged with bearish options activity yesterday, as close to 5,800 puts changed hands, more than tripling the equity's average daily volume. Roughly 1,600 of these puts were traded at the deep-out-of-the-money March 260 strike -- the majority of them at the ask price, pointing to buyer-driven volume. This strike saw an overnight rise in open interest of 838 contracts, signaling the initiation of new positions. This option now holds peak put open interest of 2,688 contracts. By purchasing these puts to open, speculators are betting that the stock will fall below $260 by front-month expiration this Friday.

This preference for puts over calls is nothing new for CME. The Schaeffer's put/call open interest ratio (SOIR) rests at 1.13, indicating that puts comfortably outnumber calls among options scheduled to expire within three months. This ratio arrives in the 71st percentile of its annual range, confirming that short-term options players have been more put-heavy toward the stock just 29% of the time over the past year.

Further echoing this bearish skew toward CME is the fact that short interest on the exchange operator soared by 101.58% during the past two months, suggesting that some of the recent call volume is attributable to short sellers seeking to hedge their bets. However, the stock's bearish bandwagon is far from crowded, as these shorted shares make up a modest 2.55% of the equity's float.

On the technical front, CME has gained more than 11% so far this year, and has outpaced the broader S&P 500 Index (SPX) by around 12% over the past 40 days. A look at the charts shows that the stock continues to trade above its 50-week moving average, a trendline that has acted as floor for the stock since early February.

At last check, the equity is up about 0.5% to trade at $271.59. CME announced last night the year-end retirement of CEO Craig Donohue. He will be replaced by current President Phupinder Gill.


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