Cboe Global Markets Reports Strong Q3 Results

By Pritam Biswas and Laura Matthews

(Reuters) – Cboe Global Markets reported better than expected third-quarter profit on Friday, helped by strong options trading as investors actively hedged against geopolitical and economic uncertainties.

A robust equities market, shifts in the U.S. Federal Reserve's key policy rates, and potential economic fallout from the Middle East conflict have investors and portfolio managers on edge, prompting them to hedge their positions.

Cboe's options trading business revenue grew 10% compared to last year, while futures revenue climbed 17%.

Average daily volumes in total company options increased to 14.88 million contracts in the quarter ended September 30, up from 14.59 million a year earlier.

Volumes in S&P 500 index options also rose, with third-quarter average daily volume increasing to 4.23 million contracts from 3.74 million. Meanwhile, options linked to the VIX volatility index rose 33% year-over-year.

"Given the secular and cyclical tailwinds in place, we believe we're well positioned as investors continue to utilize options in their portfolios and trading strategies," said Chief Executive Fredric Tomczyk during an analyst call.

Tomczyk, appointed CEO after Edward Tilly's resignation over undisclosed personal relationships, has prioritized effective capital allocation and talent management. He has focused more on Cboe's core strengths in derivatives, reducing mergers and acquisitions.

"As we move forward, we have set forth a strategic framework that we believe will ensure we are well positioned to drive growth and capitalize on opportunities we see in the market, and we are aligned to the secular trends occurring in the market today," stated Tomczyk.

Despite the positive outlook, Cboe's shares fell 4% after the call. Owen Lau, senior analyst at Oppenheimer & Co., noted that the weakness seems to stem from increased investments that could limit future margin expansion or lead to margin contraction.

Demand for 0DTE (zero-days-to-expiry) options contracts grew 7% compared to last year, making up 48% of S&P 500 volumes in the reported quarter.

Cboe's total revenue, net of costs, rose 11% to $532 million from a year earlier, exceeding an estimate of $530.76 million, according to data compiled by LSEG.

The company now anticipates 2024 total net revenue growth between 7% and 9%, up from previous guidance of 6% to 8%.

Cboe's net income attributed to common shareholders on an adjusted basis was $232.9 million, or $2.22 per share, in the three months ended September 30, compared to $218.9 million, or $2.06 per share in the prior year. Analysts had expected a profit of $2.19 per share.

Cboe's shares have increased by 19.6% so far in 2024, outperforming peer CME Group (NASDAQ:CME) but lagging behind the Nasdaq and NYSE-parent Intercontinental Exchange (NYSE:ICE).