December 11, 2018

CME Looks To Thrive In This Market

While elements of the Brexit deal could still be “clarified,” European Commission President Jean-Claude Juncker is ruling out any renegotiation of the divorce agreement after Theresa May delayed a critical parliamentary vote on her proposal to leave the EU. She now plans to meet with European leaders before an EU summit in Brussels on Thursday. If a deal cannot pass through parliament, the range of outcomes runs from a leadership challenge, a May resignation, a general election in the U.K., a second referendum on EU membership or a temporary stop on Britain’s withdrawal.

*Source:  Seeking Alpha

Let’s consider CME Group Inc. (Ticker: CME):

The VantagePoint platform recently indicated upside momentum.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average on December 10th.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position on the same day.  This indicator measures strength and weakness for a 48-hour period, in this case, strength.  The move to the GREEN position further makes the case for a potentially bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further strength.  I want to play the VP bullish indication.

Strategy Discussion

If you are strictly a stock trader, simply buying CME in the $190.50 area is a prudent move.  You are anticipating a move to the upside.  It is always a good idea to enter a sell-stop order to mitigate potential losses.  Placing that sell-stop in the $189.00 area will achieve that goal.

For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  First, you want to identify your target strike.  To do this, you need three pieces of information:  current underlying price, the date of the options expiration that you want to use and the implied volatility for that expiration.  For CME that yields a target strike of approximately $199.  You can consider purchasing the December 28th weekly expiration 197.5/200 call spread for $0.35.  The most you risk is the premium you pay and the most you can gain is the width of the spread less any premium paid. Max risk = $0.35, max reward = $2.20.  If we base our max reward on the targeted strike of 199, this provides you with a reward to risk ratio of 3.43:1

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

If you would like to learn more about the VantagePoint platform and take advantage of the exclusive offer that our clients enjoy, please visit:

https://discover.vantagepointsoftware.com/prosper-demo/

about the author:

Mike Shorr

Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProsperTradingAcademy.

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