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Many readers are wondering what

IntercontinentalExchange

(ICE) - Get Report

should do next. This morning, the

Chicago Mercantile Exchange

(CME) - Get Report

upped its bid for

CBOT Holdings

(BOT)

, and the two Chicago-based exchanges look set to merge.

It has been pretty clear from the beginning that CBOT prefers to get hitched to its cross-town rival CME, which offers better synergies and cost-cutting potential. If ICE ends up sweetening its bid, I believe ICE's stock would slip on the news. As Laurie Kulikowski explains in

this article, investors would be concerned that ICE would be overpaying out of desperation to do a deal. It would no longer be benefiting from the element of surprise or working from a position of strength.

Today's ICE rally seems to be a sigh of relief that the company won't be facing a huge financial commitment to buying CBOT. But the real upside for ICE is that it's now available as a takeover target itself, whether by one of the New York-based futures exchanges or an overseas exchange looking to gain entry to the booming energy futures trading market. Think the

Deutsche Boerse

can swallow both ICE and the

International Securities Exchange

(ISE)

, which it

bid for last week? Talk about a powerhouse global exchange with its fingers in every part of the derivative pie.

But in the meantime, as ICE's

recent earnings report showed, the exchange is hitting on all cylinders: top-line revenue growth, bottom-line profits and increases in trading volume all in excess of 50% over the year-ago period. ICE should consider it at minimum a moral victory that it made the CME pay up for CBOT. That will force them to squeeze more profits from either cutting costs or expending more time, energy and money on gaining market share and introducing new products.

The ICE can now return to running its highly profitable business while one of its competitors must now operate under added pressure to justify its purchase of CBOT. Shares of CME have jumped more than $30 today to $530, but I think the next $30 -- which will get it to the $560 price to which it committed as part of the $3.5 billion stock buyback -- will be much harder and take more time to achieve.

So I'd wait for ICE to officially withdraw its offer and then would once again turn bullish on the stock. I'd look at the September $135/$150 call spread for a net debit of $6 for the spread.

If it decides to get into a bidding war, I'd steer clear, as the only obvious beneficiary of that situation would be CBOT. And as a past member of that exchange who ultimately left a lot of money on its floor, I try to avoid that place.

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;

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