The Chicago Board Options Exchange and California-based online platform HedgeStreet have entered into an alliance. The CBOE is making an undisclosed equity investment in HedgeStreet, which the companies said is in seven figures, and they plan to jointly develop new products, share technology services and market and support HedgeStreet’s binary options and futures products known as Hedgelets.
HedgeStreet’s binary options are typically short-term in nature, and are based on the value of the underlying instrument. The payout is determined by whether the option is in-the-money or not (they are sometimes referred to as “yes-no” or “cash-or-nothing” options). HedgeStreet also offers futures Hedgelets, or “capped futures” contracts, which feature a variable payout depending on how much the underlying asset moves up or down.
HedgeStreet currently offers contracts on commodities such as gasoline, crude oil and gold, as well as unique financial instruments such as Housing Prices, Consumer Price Index (CPI) and weekly Mortgage Rates that are not available on any other market. HedgeStreet is regulated by the Commodity Futures Trading Commission (CFTC).
Under the agreement, CBOE and HedgeStreet will collaborate on retail distribution of their contracts via joint marketing initiatives and will share certain technologies and hosting facilities to achieve cost and distribution synergies.
“CBOE is extremely pleased to join forces with HedgeStreet as we share a common culture of innovation and a willingness to develop new approaches to trading,” said CBOE chairman and CEO William J. Brodsky. “CBOE’s equity investment and alliance with HedgeStreet will serve to build momentum for binary options and this exciting new breed of futures products.”
John Nafeh, Chairman and Founder of HedgeStreet, said, “By combining HedgeStreet’s powerful online model with CBOE’s reach, financial strength and technology, we are creating a winning combination.”
CBOE’s equity investment is part of a larger round of equity and debt financing recently closed by HedgeStreet, with a portion also provided by Norwest Ventures Partners, a venture capital firm active in technology and information services.