Wall Street's Latest IPO Is A Must Buy
The Dynamic Wealth Report
June 22, 2010
by Jay Chernoff, Editor
I stepped off the slowly moving escalator onto the floor of the
exchange. The scene in front of me was chaotic. Towers of bright screens
flashed an incomprehensible amount of data. People in colorful jackets
were rushing all over the floor and down computer lined aisles.
Everyone was in a hurry, but I was in no rush. In front of me is the
equity pit where I’d be starting as an options trader.
It was my first day as a trader on the CBOE.
I made the same trip every morning and I never lost the sense of awe
seeing the massive trading floor. Years later, I still get tingles
seeing the exchange floor on CNBC.
The tingling has been happening a lot lately. The CBOE is very much in
the spotlight right now. The exchange’s IPO just hit the market last
week. Shares were priced at an opening of $29 and reached as high as
$33.75 on its first day of trading. It was a very successful IPO.
The CBOE, formerly known as the Chicago Board of Options Exchange, is
the largest options exchange in the world. It’s a cutting edge exchange.
They’re willing to develop new trading products to meet the changing
demands of customers. The S&P 500 Options Index (SPX), S&P 100 Options
Index (OEX), and the CBOE Volatility Index (VIX) are just a few examples
of popular products developed and traded on the exchange.
Interestingly, the CBOE is the last major exchange to go public. But as
it’s said, “good things come to those who wait”. This IPO is certainly
no exception.
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In fact, CBOE shares are a screaming buy.
There are several reasons why I’d recommend grabbing these shares…
The Business of Trading
Securities exchanges operate in a fantastic space. Unlike other business,
they aren’t subject to downturns in the market. People are going to
trade whether markets are going up or down.
Why is that so good? Because the CBOE gets paid for every trade made on
the exchange.
The CBOE is the largest options exchange in the world. In May, 32% of
the 405 million options contracts traded on this exchange. That’s over
131 million contracts… and 131 million trips to the cash register!
But it’s not the only reason to like the CBOE…
The Growing Options Market
Many investors don’t realize how popular options are. Despite the
economic downturn, options markets are growing like crazy. In the last
decade, volume has increased by a multiple of five with no signs of
slowing down. The CBOE has some of the most popular proprietary option
products on the planet. Both institutional and retail investors trade
large numbers of the S&P and VIX index options.
Best of all, none of their proprietary products can be listed on any
other exchange. In other words, some of the most traded options in the
world can only trade on the CBOE. And the CBOE gets paid on each and
every trade.
They basically have their own little monopoly!
Big Profits
Just trading a lot of options isn’t enough. Converting options trades
into profits is what really drives the CBOE. Increasing demand for
options could boost the exchange’s earnings per share by 22%. In fact,
next year the company is projected to grow twice as much as the S&P 500. Talk about a great business!
The quality of the CBOE offering was apparent. Investors gobbled up
shares on its first day of trading.
Don’t let the hot start scare you away.
The price is currently trading around $32. I see plenty of reasons why
it can still go higher…
First off, the CBOE is a quality company with a sustainable revenue
model. Even better, the options markets continue to experience growth. I
see no reason why the CBOE can’t beat revenue expectations. Higher revenue
means a higher stock price.
Second, the company will be offering a dividend. Even if the stock price
doesn’t skyrocket, share owners will regularly collect a dividend
starting in the third quarter of this year. It’s nice to get paid to own
a stock.
Finally, and most importantly, this company is a big time takeover
candidate. One of the main reasons the exchange decided to go public was
to maximize their value in the event of an acquisition.
This industry has seen over $61 billion in mergers and acquisitions
since 2007. The possibility is high the CBOE will be the next exchange
to join in the consolidation.
There are multiple reasons why the CBOE makes an excellent addition to
your portfolio. It’s a quality company with growth potential. You’ll
collect a dividend starting in the third quarter of this year. Best of
all, the exchange is in great position to be acquired. Consider adding
some to your portfolio today.
Besides the CBOE, there were several new IPOs last week.
BroadSoft
(BSFT), Higher One Holdings (ONE), Oasis Petroleum (OAS),
China
Intelligent Lighting and Electronics (CIL), and Motricity (MOTR) all
debuted last week. Of the group, ONE and OAS are currently trading
higher.
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