It was The Duke's - Large Treasury Option Block Trade Expires Worthless

Muted response to NFP release and Powell comments
Electronic volume leads the way
Volatility lower on the day
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: September 6, 2019

Futures trended down overnight before finding a bid after the NFP number, moving from lower on the day to slightly higher. The market traded in a tight range for the remainder of the day as the response to Powell was minimal.

Big Trades

EDF0 98.625/98.875/99.00 call fly, buying 20K at 4.25

EDU0 99.50/99.75/100.00 call fly, selling 20K at 2 (see note)

EDZ0 100.00 calls, selling 25K at 2


Things to Watch in Interest Rate Futures

#1 Man, what a disappointment. With all the lead up to today’s NFP, the anticipation was for a flurry of activity based on a refreshed picture of the economy, and subsequently, the Fed’s focus. Not so much. The headline number miss, wages up. Algos got confused and futures traded in a relatively tight range. But hey, there’s still Powell speaking later, right? Wrong again. Not much new information out of Powell and futures stayed in their tight ranges for the remainder. Oh well.

#2 The muted response to today’s big events did come with some liquidations. We saw some deferred option positions scaled back after the employment numbers. Best guess is that traders are rethinking the end game for rates. We’ve been pricing in some serious rate cuts, especially in the EDU0-EDM1 area of the curve. The EDU0 call fly was bought with the EDM0 call fly of the same strikes. The EDZ0 calls were bought just last week. Normally, you wouldn’t expect to see these long-dated options & structures being bought for short-term speculation. Those views are much better served by the mid curve options. So seeing these longer-dated structures taken off makes me believe that market participants may be rethinking their rates forecasts. Time will tell, but if that’s the case, there is a lot more behind what we saw today!

#3 One bit of excitement this morning came via a large block trade in treasuries. There was a buyer of 37K Week 1 10 year options, paying ’10 for the 130.75 puts. These puts expire today! And this was before the pit open, so you got the feeling that someone knew something. Alas, it was not to be. About 10 minutes after the number, there was another block of 14K at ’02. Either way, that’s a big swing to take. Can’t all be winners.

About the Author

Albert Marquez works for Chicago Capital Markets (CCM) and covers Eurodollar & Treasury Options and Futures. Albert can be reached  on Twitter @STIR_Report or