CBOE Just Had Its IPO: Why I Bought The Stock

Yesterday, the Chicago Board Options Exchange (CBOE) went public at $29, reached $33.75, and closed at $32.49.  I ended up buying it at $32.50.

I bought CBOE because it fits a strategy I've used successfully in the past to trade IPOs.  The strategy to buy new issues of companies that have similar market share to stocks that have already performed well since their IPOs.

This strategy is included in my book Stock Trading Riches.

In this case, I believe that CBOE is similar to CBOT (Chicago Board of Trade) and CME (Chicago Mercantile Exchange) - both of whom had successful IPOs.

So far, I am 3-0 for this strategy:

1. When CBOT (Chicago Board of Trade) went public, I saw that the CME (Chicago Mercantile Exchange) had previously gone public around $35-40, and had climbed into the $300's.

So, I bought CBOT.  It went public in the 40's and I got filled at $85.  Since I follow my book's re-balancing system, I didn't get discouraged by the volatility.  I ended up selling some in the 120's, buying more at $96, and then taking profits in the $200's.  Finally, CME bought CBOT and I ended up with CME stock around $490.


2.Visa went public at $47.  I bought it at $65 and thought it was still a good price because Mastercard had previously gone public around $40, and was then trading at $223.  I recommended that purchase in this post and this one.

Visa ended up reaching $83 a month later. Here was my follow up post at that time.


3. In November 2009, I wrote about buying the Hyatt IPO at $27.92 because Hilton had done well since its IPO.  Currently, Hyatt is trading at $40.64

I think this IPO technique works because mutual funds that own the first stock will want to own both. When you can identify stocks that funds want to buy, you can "ride" their coattails.  Since they buy in large quantities, it typically takes them months to build up a position, and all their buying drives up the price.