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Breaking News - I’ve started to nibble at CBOE 
I’ve been notably bearish on the name for the last ~4 months – I’ll lay out the reason for my pivot from bear to cautious bull below.
I’ve been notably bearish on the name for the last ~4 months – I’ll lay out the reason for my pivot from bear to cautious bull below.
In April, I put an article out on Seeking Alpha detailing my bearish CBOE thesis. The core of the argument was the plunge in VIX open interest following COVID volatility.
Shares have significantly underperformed the S&P since:
Shares have significantly underperformed the S&P since:
With shares now -28% YTD, the question becomes “are there more positives than negatives baked into the price at these levels?”
I believe the answer is no, giving upside to the stock in 2H 2020.
I believe the answer is no, giving upside to the stock in 2H 2020.
First, the March VIX blowup has *slowly* started to recover. If this trend continues VIX volumes will start to march back to pre-COVID levels over time:
Second, there are multiple catalysts that can cause performance to surprise to the upside in 2H, mainly:
1)Mini-VIX futures launch
2)CME E-mini options launch
3)Data M&A
1)Mini-VIX futures launch
2)CME E-mini options launch
3)Data M&A
The mini-VIX & e-mini options launch will give the market more hedging/arbitrage opportunities, improving OI, volumes & core liquidity.
Management said as much during Q2 earnings:
Management said as much during Q2 earnings:
CBOE bought 3 data companies this year, all adding to their recurring revenue. Data revenue is quickly approaching 50% of total. Shouldn’t more recurring revenue = higher valuation? Maybe not short term, but over next couple years perception may change, especially w/more deals.
Valuation is just too low now for sentiment to get worse from here. CBOE is trading at 17x 2020 EPS AND 2021 EPS (no growth projected in 2021).
Any positive surprises can push this multiple back to peers (at least 20x)
Any positive surprises can push this multiple back to peers (at least 20x)
As always, there are risks (more VIX blow ups, poor Europe execution, loss of market share in equities), but those seem priced in now.
I’m now long CBOE at ~$86, and may buy more if price slides from here.
I’m now long CBOE at ~$86, and may buy more if price slides from here.
@irbezek @UpslopeCapital (2 CBOE bulls in the past), would love to get your thoughts on the above.
True, shouldve added them to the “what do you think” list
