Miami International Offers Growth At A Reasonable Price (Upgrade)

MIAX upgraded to a Buy with shares viewed as compellingly valued below $40. Q4 revenue rose 52% to $125M, EBITDA margin expanded to 50%, and options market share climbed to 18.2%. Options trading is the primary profit engine driven by structural volume growth and product innovation, while international and equities businesses provide additional upside.

Analysis

The structural thesis that derivatives volumes and product innovation can compound revenue is intact, but the non-obvious leverage is in order-flow capture: a venue that tightens latency and widens product breadth can convert incremental notional into outsized take-rates via clearing, market-data monetization, and co-location — that pathway scales faster than linear trading volumes and will magnify P&L on a multi-year horizon. This implies we should value platform growth more like a software/marketplace with high incremental margins rather than a pure-exchange utility; apply a higher growth multiple if execution quality and clearing share continue to improve.

Second-order competitive effects matter: incumbents with larger legacy tech stacks face asymmetric incentives — they can defend fee pools via temporary rebate increases or bundling, which will compress industry margins before any structural demand gains fully materialize. Conversely, nimble entrants can monetize new products (complex options, mini-contracts, listed volatility products) that incumbents are slow to replicate, creating pockets of durable higher take-rate revenue.

Key near-term catalysts are flow persistence (3-6 months), new product rollouts (6-18 months), and international clearing/customer wins (12-36 months). Tail risks include a sharp, sustained volatility decline that collapses franchise spreads within a single quarter, a major tech outage that drives clients to alternatives, or regulatory tweaks to maker-taker economics that can remove a core revenue lever — each can reverse operational gearing rapidly.

From a market-structure perspective, a continued shift of retail and program flow into options concentrates counterparties and elevates counterpart concentration risk on clearing members; that raises implicit liquidity premiums and creates an opportunity for a well-capitalized exchange to monetize risk services (segregated clearing tiers, insurance pools) over the next 2-4 years.

Key Decisions for Investors

• Long MIAX (MIAX) — initiate a 1.5% NAV position sized to conviction, target asymmetric upside of +50% over 12–18 months vs downside capped to -20% with a stop; primary edge is platform take-rate expansion and product mix improvement, hedge with short exposure to broader exchange names if macro vol collapses.
• Long LEAP calls — buy ~18-month MIAX calls ~25% OTM to express convexity (size <=0.5% NAV). Rationale: low upfront cash for large upside if flows and product launches sustain; maximum loss is premium, target 3–5x payoff if cadence and international wins materialize within 12–24 months.
• Pair trade: long MIAX / short CBOE (CBOE) in a 1:0.6 notional ratio — take a medium conviction relative-play (9–12 months). Works if share-shift continues and incumbents' margin compression outpaces absolute flow declines; set a 15% relative stop and take-profit at 30% relative outperformance.
• Risk hedge: buy short-dated protective puts on MIAX or keep a 0.5% NAV long position in broader volatility hedge (e.g., short-term VIX calls) for the next 3 months to protect against a sudden volatility melt and the attendant immediate earnings shock to all exchanges.