Bullish on Publicly-Traded Exchanges

NDAQ, NYX, and ICE All Moving Higher

By Bryan Bottarelli
Thursday, April 12, 2007 1:17 PM EDT
Thu, 12 Apr 2007 17:17:00 GMT

Dear Bottarelli Research Member,

Sometimes the next “big” investment trend is right under your nose. That’s what we have today with the publicly-traded exchanges, which is why I’m calling these names the best stocks you can own today.

It’s not hard to figure out why these stocks offer such tremendous upside potential. First off, the barriers to entry are insurmountable. For example, there are only a handful of publicly-traded exchanges in existence — which means you have a lot of investment dollars all flowing into a very small pool of stocks. This supply/demand imbalance will fuel continued upside momentum across the board.

Secondly, exchanges make money in times of heightened volatility. No matter if the markets are up or down, increased levels of volatility equates to increased trading volumes — which means more commissions for the exchanges. And for an investor, any company that’s positioned to grow revenues in any market condition is an incredibly sought-after asset — which is exactly what you have with today’s exchange plays.

Specifically, I’m absolutely bullish on NASDAQ Stock Market (NDAQ – NASDAQ), NYSE Group (NYX – NYSE) and InterContinental Exchange (ICE – NYSE). In fact, if this were a stock letter, I’d recommend buying all three and holding onto them for years. But this is a trading letter — which means we’re going to use the strong intra-day moves of these stocks to lock in quick trade winners.

ICE

Right now, the best hand for your buck comes in the form of the NDAQ June 30 Calls (NQD FF).

It’s quite clear that NDAQ will soon acquire another exchange — which means its’ only a matter of time before the stock breaks out of its recent funk and moves aggressively higher. The stock popped yesterday, in fact, off news that NDAQ made a preliminary takeover bid for the OMX (which operates stock exchanges in Copenhagen, Stockholm, Helsinki and Iceland) valued at $3.3 billion.

Denial of this bid, combined with a 90-point market sell-off, knocked the stock back down — but this just goes to show you that any formal offer could push the shares up rather quickly.

NDAQ

Today, news is leaking that the NASDAQ Stock Market is also in talks to buy the Philadelphia Stock Exchange — which would give NDAQ a foothold in the growing options business (Philly facilitates the order flow of the third most options contracts traded nationally). So once again, NDAQ will, in one way or another, make some move soon and I want everyone to be positioned to ride the coming upside. Maintain your NDAQ June 30 Calls (NQD FF), and if you have yet to own this position, enter it today.

On the same hand, let’s also enter a new position in NYSE Group (NYX – NYSE).

NYX

I love the fact that the stock is bouncing right at the 50-day moving average — which sets up an idea call-buying opportunity. Specifically, I like the NYX May 95 Calls (NYX ES). Currently trading between $4.50 and $4.70 per contract, let’s enter them now to participate in any upside momentum leading into the weekend. Here’s the trade:

PLAY: Buy the NYX May 95 Calls (NYX ES) at or under $4.90, good for the day. Place a protective stop loss at $2.40.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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