Hook / Thesis
Cboe Global Markets controls the largest options exchange in the U.S. and continues to convert that franchise into reliable cash flow and growing shareholder returns. The latest quarter (period ending 09/30/2025) showed revenue of $1.1417 billion and net income of $300.8 million, and management has continued to lift the dividend (most recently declared on 10/23/2025). At a market price near $256.25 on 12/29/2025 and roughly 104.9 million diluted shares outstanding, the company trades at an implied market capitalization near $26.9 billion — a valuation that still looks reasonable given durable cash flow, modest net leverage and optionality in market-data and international expansion.
In short: the bull case holds. For income-seeking investors who also want upside participation in cyclical market volumes, CBOE looks like a pragmatic buy with defined risk controls. Below I lay out the business drivers, the quantitative support from recent filings, a valuation frame, specific trade mechanics (entry/stop/targets), catalysts and the risks that could invalidate the thesis.
What Cboe does and why the market should care
Cboe is primarily an exchange business. It runs the largest U.S. options exchange and owns proprietary index products (S&P 500 and VIX index options under an exclusive contract with S&P Global) that are critical to institutional hedging and retail volatility trading. About 60% of Cboe's revenue stems from options. The firm broadened its footprint into U.S. and European equities via the 2017 BATS acquisition and has continued to expand internationally through targeted acquisitions in Canada and Australia. Market participants care because Cboe's earnings are largely a function of trading volumes, volatility regimes and the ongoing monetization of market data and index/licensing products - all high-margin revenue streams.
Operationally, exchange economics are attractive: low incremental capital needs, high gross margins and recurring revenue from data and licensing. That combination supports both cash returns to shareholders and reinvestment for growth — a dual objective Cboe has shown in recent quarters with steady operating income and dividend increases.
Recent financials - hard numbers that matter
- Q3 FY2025 (07/01/2025 - 09/30/2025): revenues $1,141,700,000; operating income $370,300,000; net income $300,800,000; diluted EPS $2.85 (quarter).
- Cash generation in the quarter was positive but not massive: net cash flow from operating activities was $153,900,000, and net cash flow (including investing) was $245,600,000.
- Balance sheet snapshot (as of quarter): total assets $9.0686 billion; total equity $4.8849 billion; long-term debt $1.4424 billion. Net debt is manageable relative to equity and recurring cash flow.
- Dividend trend: quarterly dividend raised to $0.72 (declaration date 10/23/2025; pay date 12/15/2025). Dividends have trended up from $0.55-$0.63 over the prior twelve months, signaling confidence in cash flow stability.
To put valuation into context: annualizing the most recent quarterly diluted EPS ($2.85) gives an approximate run-rate EPS of $11.40. At a $256.25 share price that implies a P/E of roughly 22.5x on an annualized basis. That is a simple, transparent frame — not a precise TTM P/E — but it highlights that the market is paying for durable earnings, the franchise value of options and continued dividend growth.
Valuation framing
Using the dataset: diluted shares ~104.9 million (diluted average shares reported in Q3) x $256.25 = implied market cap ≈ $26.9 billion. The company's long-term debt (~$1.44 billion) and sizable equity (~$4.88 billion) point to a moderate leverage profile — not aggressive for a financial-services / exchange operator. Gross profit for Q3 was $605.5 million, and operating income $370.3 million, reflecting strong margins on core activities.
Compare qualitatively: exchanges and market-data providers typically trade at a premium to broad-market P/Es because of recurring revenue, high margins and low capital intensity. At an implied mid-20s P/E on an annualized quarterly EPS basis, Cboe sits in line with that logic. We are not seeing a bubble valuation; instead the price reflects a reasonable multiple for cash-generative, low-capex businesses with distribution optionality.
Trade idea - actionable
Trade direction: Long
Time horizon: Position (3–9 months)
Entry: 252 - 262 (current price ~256.25 on 12/29/2025)
Initial stop loss: 240 (approximately 6% below entry at 256)
Target 1 (near-term): 280 (~10% upside)
Target 2 (stretch / 3–9 months): 310 (~21% upside)
Position sizing: risk no more than 1-2% of portfolio on stop loss (size accordingly)Rationale: entry around $252–262 buys the business at a reasonable valuation band and allows for a tight stop under the recent support cluster (buying a pullback in a structurally strong franchise). The stop at $240 respects a technical breach that signals momentum loss and protects capital if volumes and trading revenue disappoint. Targets are set with a measured reward/risk and reflect the upside if trading volumes re-accelerate, margins hold, and the market rewards stable dividends plus earnings growth.
Catalysts to watch
- Macro and market-structure driven trading volumes - any pickup in volatility or IPO activity tends to lift options and derivatives volumes and increases transaction revenue.
- Product launches and data licensing wins - for example, broader adoption of new index options (Bitcoin ETF index options mention in a 01/14/2025 webinar) and expanded market-data feeds (Cboe One Feed partnerships reported 03/18/2025) would lift recurring revenue.
- Dividend increases / buyback announcements - management has raised and kept the dividend; further hikes would underpin the income thesis and attract yield-seeking investors.
- Regulatory outcomes - a favorable stance on new products (0DTE, crypto-linked products) would reduce uncertainty and unlock growth opportunities.
Risks and counterarguments
Below are the main risks that could invalidate this trade, plus a direct counterargument to the bullish case:
- Volume risk / cyclicality - Exchange revenues are directly tied to trading volumes and volatility. A sustained period of low activity would compress revenues and operating leverage. If quarterly operating income and net income begin to trend lower (contrary to recent results), valuation would likely rerate downward.
- Regulatory headwinds - Policy changes (for example restrictions on certain options product mechanics or heavy-handed regulation on 0DTE strategies) could limit product uptake and reduce fee pools. The headline discussion in August 2025 about binaries vs 0DTE highlights how quickly regulatory risk can surface.
- Competition on pricing / market structure - Aggressive pricing by competing exchanges or changes in order routing economics could pressure transaction fees, squeezing gross margins.
- Execution risk on growth initiatives - International expansion and market-data monetization are optionality; if these initiatives require higher investment or fail to scale, long-term upside would be diminished.
- Counterargument: The bull case assumes continued demand for options and a favorable environment for monetizing market data. If institutional flows shift away from listed options (e.g., to block trades, OTC, or alternative hedges) or if a competitor captures meaningful share in proprietary index products, Cboe's growth runway may be more limited than priced in.
What would change my mind
I would turn neutral-to-bearish if any of the following occur: (1) two consecutive quarters of materially declining revenues and operating income tied to volume declines; (2) a regulatory decision that meaningfully restricts option product offerings or increases the cost of trading activity; or (3) management signals structural margin pressures tied to competitive pricing or higher-than-expected investments that dilute free cash flow and impede dividend coverage.
Practical checklist for monitoring the trade
- Quarterly headlines: revenue, operating income, net income and operating cash flow (watch trends through the next two quarterly reports).
- Dividend cadence: follow declaration dates (recent declaration 10/23/2025 with pay date 12/15/2025).
- Volume and product metrics: options contract volumes, data-license wins, and new product adoption (crypto ETF options, extended-hours trading initiatives in the broader market).
- Regulatory news flow: any rule proposals or enforcement actions that target options mechanics or index licensing.
Conclusion
Cboe is a high-quality exchange operator with recurring, high-margin revenue and a track record of returning cash to shareholders. The latest quarter (ending 09/30/2025) delivered $1.142 billion in revenue, $300.8 million in net income and continued dividend increases. At an implied market cap near $26.9 billion and an annualized EPS approach that implies a mid-20s P/E, the stock is fairly valued for a durable franchise. The proposed trade - buy in the $252–262 range, stop at $240, targets $280 and $310 - offers a disciplined way to capture both income and upside while limiting downside through a clear stop.
Keep risk management front-and-center: exchanges are not immune to volume cycles and regulatory shocks. If you buy the pullback, size the position so that a stop at $240 limits portfolio risk to your tolerance band. If Cboe sustains revenue and operating-income growth while continuing to lift dividends, the market should pay up for that combination. If not, respect the stop and reassess on the next data point.
References / relevant dataset items
Dividend declaration: Cboe Global Markets Declares Fourth-Quarter 2025 Dividend (published 10/23/2025).
Note: figures cited are from the company's latest reported quarterly financials for the period ended 09/30/2025 (filing accepted 10/31/2025).