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Don't Buy Calls on CME, Despite New Bitcoin-Fueled Highs

Front-month options on CME are unusually expensive right now

Managing Editor
Dec 1, 2017 at 9:47 AM
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One stock on the move today is CME Group Inc (NASDAQ:CME), after the exchange operator said it will launch bitcoin futures beginning on Monday, Dec. 18. This much-anticipated development paves the way for bitcoin ETFs and other cryptocurrency derivatives.

CME stock is up 1.2% at $151.27 in morning trading, and earlier set an all-time high of $152.14. CME is now up more than 31% on the year, and has gained about 90% from its January 2016 intraday low of $79.67. In fact, the equity's 14-day Relative Strength Index (RSI) is hovering right around 80 -- firmly in overbought territory.

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows an influx of CME calls during the past two weeks. CME Group stock's 10-day call/put volume ratio of 5.91 ranks in the 91st annual percentile, suggesting calls have been bought to open over puts at a faster-than-usual clip.

However, it's not the best time to buy short-term options premium on CME, despite today's BTC futures buzz. CME's Schaeffer's Volatility Index (SVI) of 29% arrives in the 100th annual percentile, which means extremely elevated volatility expectations are being priced into front-month options -- effectively raising both the cost of entry and breakeven point on a purchased call or put play.

 
 

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