International Securities Exchange (ISE:AMEX) 2005-05-09
The boom in options trading is set to continue and a recent IPO could benefit.
The long anticipated arrival of the world's largest equity options exchange finally hit the market on March 8th 2005. It's usually good advice to avoid an IPO stock. Market history clearly shows us that the majority of companies that go public often decline three to six months following their offering. That's because institutions underwriting the stock do all they can to ensure a strong launch based on volume or bid growth. It's in their vested interest as underwriters to make sure that the stock is heavily subscribed or even better (for them), heavily oversubscribed.
That was exactly the case with the ISE on March 8, as volume that day was simply huge. In fact, ISE went to market with an Initial Public Offering at $18 per share and shot up 56% to $28.08 a share the same day. It carried on rising to a high of $31.69.
But recently, it has settled down to about $26, still well above its IPO, but down about 17% from its previous high. Now that the initial wave of speculative buying is over, ISE is trading at a more reasonable level.
The ISE is probably the best derivative-based company to go public since the Chicago Mercantile Exchange. This company is not only very profitable but equally making significant inroads into the world of options trading. In 2000, the ISE became the first registered exchange approved by the United States Securities and Exchange Commission since 1973. After developing a dynamic market structure that integrated auction market principles into an advanced screen-based trading system, ISE launched the first fully electronic U.S. options exchange in May 2000.
The ISE has redefined the options market by introducing electronic trading, competition and lower fees.
The ISE continues to gain market share and impressively grow its trading volume. Recent statistics for February 2005 show average daily trading volume in equity options contracts rising 17.6% compared to February 2004.
Total equity options volume increased to 32.4 million contracts traded, as compared to 27.6 million contracts traded for the same period 12 months ago. Furthermore, the ISE, unlike most companies
traded in the United States or abroad, does not require an expanding economy to generate corporate profits. The ISE can earn money in any market environment, provided volume growth is expanding.
This is the beauty of this company.
During the equities slump from 2000 to 2002, bonds, commodities and foreign currencies skyrocketed.
So, all three U.S. derivative-based exchanges earned huge profits over that period, including the ISE.
When volatility explodes higher, traders and investors rush to execute trades because trends are highly transparent - and that means trading profits for platforms like the ISE. Even if stocks suffer another bear market, these companies don't rely on an expanding economy to boost profits. That's why ISE is such an attractive proposition. It offers investors a different revenue stream apart from traditional stock investments. The latter rely on an expanding U.S. or global economy to boost margins. That's not the case for derivative-based trading companies. Bull or bear, the ISE can still profit.
The International Securities Exchange is a great long-term investment. As options trading volume continues to grow for the remainder of this decade, profits for the ISE should literally skyrocket.
Buy International Securities Exchange (ISE:NYSE) up to US$28