The Best Trade on Financial Regulation

Even though financial regulation has been perceived as bad for business, there will be winners once the law has passed.

And Cramer sees it as all but a foregone conclusion at this point—failed procedural vote or not—that President Obama will eventually sign a regulation bill. Washington, hearing loud and clear the taxpayers’ outrage at Wall Street, in intent on assigning strict rules to derivatives and their trading. Legislators will find a way to bring this trading into the open while banning so-called “secret derivatives.”

The beneficiary of this new law then will be an exchange with a strong platform for derivatives, and Cramer thinks the best of them is Intercontinental Exchange .

ICE is a futures exchange, meaning it’s where traders go when they want to buy and sell commodity futures. But the exchange is also a clearinghouse for derivative trades, a booming market courtesy of the world’s return to economic growth. Specifically, though, in terms of financial regulation, ICE is the leading clearinghouse for credit-default swaps. These are the derivatives that Washington so wants to regulate because they were a big cause behind the financial crisis.

For this reason, Cramer sees ICE as a great short-term trade on financial regulation’s passing. And as a trade only, because the credit-default-swap division accounts for less than 5% of the company’s revenues. Cramer likes the stock, though, because this exposure hasn’t yet been priced in. In the meantime, investors will own a piece of ICE’s strong futures and options business, where total volume was up 10.6% in 2009.

Keep in mind the run that ICE has already had, with the stock up $2, or nearly 2%, today alone. And it gained $10 last week. But the momentum in this name is such that investors are forced to buy high and sell higher, rather than buying low and selling high. If Deckers, Whirlpool, Netflix and Chipotle are any indication, though, that momentum should continue.

What if you don’t want a quick play on financial regulation? The CME Group might work for the medium term, as would NYSE-Euronext for the long term. Cramer likes NYX’s 3.5% dividend yield, too.

“ICE is the trade,” though, Cramer said, “but only if you’ve got the stomach for a big momentum stock that’s already had a huge run.”

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