Bloomberg reported Monday night that options volume in the US had set its third straight daily record, as over 41 million contracts were traded as the US markets plunged. This number comes after last Friday and Thursday both posted records, of 39.5 million and 36.1 million contracts respectively. All the market action has caused a surge in the VIX, with was up 50% Monday to 48.
All this trading activity should be benefiting the owners of exchanges across the board, but shares of the major exchange operators are following the market lower. However, shares of CBOE Holdings (NASDAQ:CBOE), the owner of the Chicago Board of Options Exchange, have outperformed shares of its larger peers over the last 5 days, down less than 5%, compared to losses of 10+% for the Nasdaq OMX Group (NASDAQ:NDAQ), the CME Group (NASDAQ:CME), and the Intercontinental Exchange (NYSE:ICE). NYSE Euronext (NYSE:NYX) is down over 20%, although the slide in that stock has the additional pressure of an expanded EU antitrust probe into their merger with Deutsche Boerse. So what's behind the strength in shares of CBOE, and can the firm continue to outperform its larger peers?
The first potential source of strength for CBOE was their August 2nd announcement of a new $100 million dollar buyback plan and a 20% increase to the quarterly dividend. These two actions signaled a further commitment to maximize shareholder returns, but share buybacks and a 2% dividend have not spared CME from falling, so it does not seem like that would be enough to support CBOE above the rest of its peers. In a similar vein, the August 4th Q2 earning announcement, which showed a 33% rise in EPS to $0.36 and operating margin of 46.9%, the highest in 10 quarters, could have helped the stock find some support. But ICE also reported earnings during this period, on August 3rd, and that stock has fallen in tow and tracked the others lower.
The most likely reason for the strength in the stock, in my opinion, has been the way the company has highlighted the extraordinary volume CBOE Holdings has seen across its exchanges. On August 5th, CBOE put out a release highlighting the daily record volumes at the CBOE, the CFE (CBOE Futures Exchange), and C2 Options Exchange. Then again Monday night the firm put out another release, this time highlighting that the top 2 volume days at the CBOE have happened in the last 2 trading days, both exceeding the volume seen on the day of the Flash Crash in 2010. Furthermore, three of the top 6 volume days for CBOE have happened in the last 3 trading sessions, meaning more than 31 million contracts have traded on the CBOE between last Thursday and Monday.
When compared to July 2011 volume of 86.9 million, and August 2010 volume of 77 million contracts, it is easy to see how much volume has ramped up since Thursday. Record volume over consecutive days was also seen at the CFE and C2 Options Exchange at the end of last week, which is another very positive sign for shareholders due to the much higher rate per contract (RPC) on the CFE, compared to the other exchanges.
Given these massive spikes in trading volume at CBOE Holdings, it stands to reason that Q3 is shaping up to be the best quarter the company has seen as a public company. While there is no way of proving that the press releases detailing the record volumes at the CBOE, CFE, and C2 have helped support shares of CBOE Holdings, it is the only exchange putting out such releases, and its shares are outperforming.
As long as the market stays choppy, CBOE Holdings will continue to see abnormally high volumes, leading to outsized profits. And as long as the company keeps putting out press releases reminding investors how much more profitable the company is during these periods, expect the company to continue to outperform its peers.