Morgan Stanley double-downgrades CBOE as tail risk and volatility decline

Investing.com -- Morgan Stanley double-downgraded CBOE Global Markets from Overweight to Underweight on Wednesday. The investment bank pointed to a sharp reduction in market tail risks following a “sooner and better than expected tariff de-escalation with China.”

The move comes with a price target cut from $256 to $215, implying about 3% downside from current levels.

According to the firm, the easing of geopolitical tensions “reduces tail risk and volatility, which could limit upside to index options volumes on CBOE’s exchange.”

Morgan Stanley now sees a slower growth trajectory for the company’s core index options business, with “more downward than upward bias” to current estimates.

The firm also trimmed its earnings estimates for 2026 and 2027 by 1% and now expects index options average daily volume (ADV) to grow 14% in 2025 and 6% in 2026, resulting in top-line revenue growth of 9% and 6%, respectively.

Morgan Stanley told investors that it sees the potential for valuation multiple compression as the growth outlook softens.

“[We] see risk multiple de-rates to 21x (modest premium above 3-year historical of 19.7x) on slower/decelerating volume growth outlook,” analysts wrote.

While CBOE has traditionally benefited from heightened volatility and geopolitical uncertainty, Morgan Stanley believes that the recent improvement in global risk sentiment will work against further volume acceleration.

“We see scope for less equity index volatility/volumes post China tariff de-escalation that reduces tail risk,” the note said.

As a result, the bank now views CBOE as a “relative Underweight” within the broader exchange and financial infrastructure space.

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