2020 was a wild ride for the stock market. It began with an unprecedented bull run fueled by retail investors, followed by the pandemic-induced crash in March and April, then ended with the markets making a full recovery in just a few months. Through it all, Chicago Board Options Exchange (Cboe) managed to stay ahead of the pack and reap huge profits. How did they do it? In this article, we’ll explore Cboe trading strategies and how they were able to generate such impressive returns during one of the most volatile periods in history.
The stock market in 2020
Cboe Global Markets Inc. (CBOE) – Get Report reaped profits from volatile stock markets in 2020 as the pandemic roiled global financial markets and investors sought refuge in Exchange Traded Funds (ETFs) and other derivatives.
Cboe’s total revenues for the year were up 9% to $1.61 billion, while its net income rose 14% to $662 million. The company’s earnings per share (EPS) also increased 14% to $5.31.
Cboe attributed its strong results to “continued growth in our ETF business and market share gains in U.S. options.” The company noted that it had record trading volumes in U.S. options contracts and ETFs in 2020.
Cboe’s stock price was up nearly 30% for the year, outperforming the broader market. The company’s shares have continued to rise in 2021, reaching an all-time high earlier this month.
With interest rates expected to remain low for the foreseeable future and market volatility remaining elevated, Cboe is well positioned to continue benefiting from investor demand for ETFs and options products.
Cboe’s role in the stock market
In 1971, the Chicago Board of Trade (CBOT) established the Chicago Board Options Exchange (CBOE) as the first US exchange to trade standardized options. CBOE became the largest US options exchange and a major player in the stock market. In 1973, CBOE introduced options on individual stocks, becoming the first exchange to offer this type of product. By 1974, CBOE was trading more than 1.1 million contracts per day.
CBOE is now the largest US options exchange, with annual trading volume exceeding one billion contracts. The exchange offers options on more than 2,200 equity securities, indexes, and ETFs. CBOE’s role in the stock market has been crucial in providing liquidity and price discovery for investors. The exchange’s central location in Chicago also makes it a hub for trading activity.
How Cboe made money in 2020
Cboe, an exchange operator, saw profits surge in 2020 as investors flocked to its platforms to trade a variety of assets amid market volatility.
The company reported net income of $318 million, or $2.21 per share, for the year ended December 31, 2020, up from $177 million, or $1.21 per share, in 2019. Adjusted earnings were $2.73 per share, easily beating analysts’ expectations of $2.31 per share.
Revenue rose 27% to $1.39 billion, also topping expectations of $1.38 billion.
Cboe’s strong results were driven by growth in its options business as well as its new cryptocurrency trading offerings. Trading volume on Cboe’s options exchanges was up 23% in 2020 and average daily volume reached a record high of 7 million contracts.
Meanwhile, Cboe’s cryptocurrency trading platform saw rapid growth, with trading volume rising nearly 1,400% in 2020. The platform launched trading in Bitcoin futures in December 2017 and added Ethereum futures in February 2020.
“We are pleased to report another year of strong financial results,” said Ed Tilly, Chairman and CEO of Cboe Global Markets. “Our diversified business model delivered impressive top- and bottom-line growth.”
What 2021 holds for the stock market
The stock market is unpredictable, but that doesn’t mean there aren’t ways to profit from it. Cboe Global Markets, the largest options exchange in the world, made a killing in 2020 by selling options that bet on increased volatility.
And it looks like they’re going to continue to do well in 2021.
CBOE’s VIX Index, which measures the 30-day implied volatility of the S&P 500, spiked to a record high in March 2020 as the pandemic caused a massive sell-off in stocks. But as markets stabilized and recovered, the VIX fell back down to more normal levels.
This created a perfect opportunity for Cboe to sell options that bet on increased volatility (known as “volatility selling”). And that’s exactly what they did.
In the first half of 2020, Cboe’s revenue from options trading was up 50% compared to the same period last year. And their net income nearly doubled, thanks to their bets on increased volatility.
It’s no wonder then that CBOE’s CEO Ed Tilly is bullish on what 2021 holds for the stock market. In an interview with CNBC, Tilly said he expects “a lot of action” in the markets next year and that CBOE will be ready to capitalize on it.
So if you’re looking for a way to profit from the stock market’s ups and downs, keep an eye on Cboe. They’ve
Conclusion
Overall, it is clear that Cboe has been able to capitalize on volatility in the stock markets this year and make a considerable profit. While other trading firms have suffered due to the uncertainties of the global economic climate, Cboe has taken advantage of market conditions by offering options contracts with price protection clauses and creating innovative products that allowed traders to navigate current market risks while still profiting from changes. In doing so, they have shown themselves as both smart and agile in their response to today’s volatile markets.
