What We're Trading: Low Expectations Surround Uptrending CME Group Inc (CME)

Despite CME Group Inc's (NASDAQ:CME) longer-term uptrend, sentiment toward the stock is stacked on the skeptical side

Jan 10, 2017 at 9:50 AM
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Exchange operator CME Group Inc (NASDAQ:CME) has been trending higher for some time now, boasting a nearly 38% year-over-year lead. After hitting an eight-year peak near $120 in mid-December, which is also 50% above its January 2016 low, the stock pulled back to the $114-$115 neighborhood -- home to its rising 40-day moving average and 0.9 times its December 2007 all-time high. A sharp bounce off this double-barreled layer of technical support has CME back above its 10-day moving average, suggesting the time may be right to bet on the equity's next projected move higher.

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What's more, there's the plenty of skepticism levied toward the outperformer, which could help fuel the stock's fire down the road. In the options pits, the security's Schaeffer's put/call open interest ratio (SOIR) is docked at a top-heavy 1.30, and ranks just 7 percentage points from a 52-week peak. Simply stated, short-term speculators have rarely been as put-heavy toward the stock as they are now. CME could get an additional boost as the hedges related to these bearish bets are unwound over the next several months.

Elsewhere on Wall Street, six of 10 covering analysts maintain a "hold" or worse rating on the stock. Plus, despite the equity's positive reaction to the November election results in the U.S., short interest on CME is up nearly 46% since the Nov. 1 reporting period -- and is now docked at its loftiest level since October 2015. Some well-deserved upgrades and/or a round of short covering could draw more buyers to CME's table.

Plus, low volatility expectations are currently priced into CME's near-term options -- a potential boon to premium buyers. Specifically, the stock's Schaeffer's Volatility Index (SVI) of 19% ranks in the 27th percentile of its annual range. Lastly, our recommended call option has a leverage ratio of 7.8, and will achieve its target profit on a 12% rise in the underlying.

Subscribers to Schaeffer's Weekend Series service received this CME commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Series is one of our most popular trading services.

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