I pulled the trigger this morning and sold my $CBOE position to buy Tradeweb $TW.
An explanation of my decisions below:
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I had purchased CBOE in mid-2020 at ~$85 on the thesis that VIX & Index Options activity would recover as vol normalized, with Europe derivatives success as longer-term upside. It was a value/macro play more than a bet on management or CBOE's strategy.https://twitter.com/HideNotSlide/status/1290318920038129664?s=20 …
Breaking News - I’ve started to nibble at CBOE
I’ve been notably bearish on the name for the last ~4 months – I’ll lay out the reason for my pivot from bear to cautious bull below.Show this threadShow this thread
CBOE's recent earnings disappointed me. While Index Options & futures are slowly recovering, its equities business is suffering from pricing & market share pressure from off-exchange trading & startups like MEMX. Higher volumes don't matter if they don't translate to earnings.
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Additionally, expenses are expected to jump +30% in 2021 as recent M&A doesn't come with synergies & their European derivatives buildout requires more investment. That expense jump is quite a lot to stomach, and ROI on this spend isn't clear to me. https://frontmonth.substack.com/p/cboe-q4-2020-earnings-review …pic.twitter.com/XSWERZjzez
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Why
$TW instead? Their biz is booming even in a low rate environment, which Q4 earnings validated. New technologies are directly translating into happy clients & more market share. Treasuries - streams, eSpeed Mortgages - spec pool trading Corporate bonds - portfolio tradingpic.twitter.com/q0E3Oz7lBP
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I'm willing to pay a premium for a higher quality business with investments that are paying off *today*, rather than a discount for a promise that investments *may* payoff in the future with little to back this up right now. Open to questons/feedback/criticism if any!
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End of conversation
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