Selling the CME Group to Stay Long

• Posted by Greg Harmon
• on January 6th, 2015

The floor of the CME has not looked like this in years, but that does not seem to matter to the stock price. It has taken flight out of a Cup and Handle on the way to a target at 100. But with the current pullback in the market, the CME stock price has also pulled back, and is testing support of both a rising trend line and the basing platform from early December. You like the tend and want to hold it for that touch at 100, but it is looking weak. What to do?

One options is to protect your trade by flipping it to an options trade. By selling the stock and buying a February 6 Expiry 87 Strike Call (offered at $2.80) you reduce your exposure to the price of the option. Adding a 1×2 Put Spread can give you downside participation should the support areas not hold it. You can do that for no cost other than margin. And interest rates are still at zero right?

Buying a February 6 Expiry 87/85 1×2 Put Spread, buying one 87 Put and selling two 85 Puts, gives participation down to 85 and a possible entry below that back into the stock at a price basis of 83. That is right at a retest of the top of the Cup and the November low.

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