Playing on the Growth of Derivative Trading

A company called Optionable recently came across my radar screen, and it looks like an interesting play on the growth of derivative trading and especially on the use of electronic platforms for trading futures and options.

Optionable trades on the OTC bulletin board and has a market capitalization of $300 million. Last week, the company reported fourth-quarter revenue of $6.8 million, a 300% increase over the year-ago period, and a bottom-line profit of a penny per share. Its stock price has jumped more than 500% over the past four months and is up another 12% to $6.70 today. Small-caps that trade on the bulletin board are not without significant risk, so be sure to do your homework accordingly.

It doesn't have listed options, but it does appear to have some stable financial underpinnings and good growth prospects. The company's main business is its OPEX electronic-trading platform for trading and providing liquidity in energy futures and derivatives. There has been a steady and positive news flow, and unlike the dot-com bubble days that were filled with meaningless press releases, Optionable seems to be making substantive steps in building its business.

For instance, last December, the New York Mercantile Exchange (NMX - commentary - Cramer's Take), which is the leading energy exchange in the U.S., agreed to allow trading of heating oil, crude oil and natural gas options on the OPEX platform. In January, the Nymex took a 19% stake in Optionable that included warrants to increase its holdings.

This might be an admission by Nymex that it was slow to respond to the Intercontinental Exchange (ICE - commentary - Cramer's Take), which launched its electronic energy platform last year and quickly stole 30% market share. The Nymex is also having trouble getting its own electronic platform up and running efficiently. All this is surely a boom for Optionable.

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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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