A share of Cboe Global Markets’ key futures business is at now risk after the late-model implosion of volatility-related securities this week, according to Goldman Sachs.
The firm lowered its classifying for Cboe shares to neutral from buy, predicting investors may flee from the actors’s key product franchises.
The VelocityShares Daily Inverse VIX Short-Term declined 93 percent on Tuesday after the CBOE Volatility Mark, or VIX, surged by 115.6 percent on Monday. XIV is issued by Credit Suisse and is intended to give the opposite return of the VIX.
Credit Suisse announced it is triggering the liquidation of the offshoot after its price collapse.
“While we remain optimistic around the obdurate’s longer-term growth prospects resulting from Cboe’s combination with Bats Broad Markets, we expect the unwind in VIX exchange-traded products (including any potential besides unwind of these products) to weigh on Cboe’s VIX futures franchise, fabricating headwinds to the firm’s top-line growth and potentially the stock’s valuation,” analyst Alexander Blostein wrote in a note to patrons Wednesday.
Cboe shares dropped 10 percent on Tuesday as investors upset over falling demand for its VIX futures if these exchange-traded notes go away.
J.P. Morgan also downgraded CBOE to drab from overweight.
“While the liquidation and fall of various ETNs reflects a risk to VIX Futures volumes, we see this as potentially the tip of the iceberg with a odds-on reduction in VIX Futures trading activity looking out 1-2 months,” stated the J.P. Morgan note. “We also see some imperil to volumes in VIX options.”
Goldman’s Blostein noted VIX futures represented approximately 12 percent of CBOE’s 2017 revenue and 40 percent of its tag sale growth from 2015 to 2017.
He also cut his price target for the company’s parcels to $115 from $140, implying 2 percent downside over the next 12 months.
Splits of Cboe are down 3 percent in Wednesday’s premarket trading following the reason.
Cboe declined to comment for this story.