CBOE Holdings, Inc (CBOE) operates markets for the trading of equity, index and other exchange trade options. The CBOE also holds exclusive listing rights for SPX options and VIX futures and options. The company’s stock is currently trading around $49.55 in a 52 week range of $29.01-$51.12. The stock has been massively outperforming the market this year adding over 68% to share prices year to date. CBOE is set to report their most recently quarterly earnings tomorrow before the open. The stock is historically strong on earnings day. Over the past 8 quarters the stock has rallied 6 times on earnings day with an average move of 2.2%. Shares of CBOE are also trading above the Ichimoku Cloud, indicating the stock is in bullish territory. We believe that the historical strength in CBOE on earnings and the bullish chart set up provides us with an opportunity for a long in CBOE ahead of earnings. Currently the options market is implying a move of $2.00 in CBOE by November expiration. Using this implied move we can calculate an upside target of $51.40. Using this upside target we can now set up an options strategy that will have a well-defined risk vs. reward profile and a low initial capital outlay.
Trade: Buying the CBOE Nov 50-52.5 Call Spread for $0.70
Risk: $70 per 1 lot
Reward: $180 per 1 lot
Breakeven: $50.70
