Interest Rate Traders See SOFR Futures Volume Tick Higher

Below average session volume
Futures in tight range
Volatility flat to slightly higher
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: September 26, 2019
 

Slow day as markets took in geopolitical news. Majority of Eurodollar futures curve trades in 5 tick range. Very low options volume.

Big Trades
 

EDU0 99.50/99.75 call spread, paying 2 on 25K

Jan (EDF0) 98.75 call (3x) vs EDH0 98.875/99.125 call spread, selling the 3 EDF0 calls at 8.5, 15K

EDM0 99.375/99.50 call spread, paying 1 on 40K (see note)

EDH1/EDU1 99.50/99.75/99.875 call tree stupid, 3.5 on 20K

 

Things to Watch in Interest Rate Futures
 

#1 With little market activity to discuss, it’s a good time to revisit current vol levels. Now that the excitement of the Fed meeting and the Great Repo Scare of 2019 is behind us, volatility is slowing moving towards its recent lows. Although I don’t know if any economic number will jar us, the possibility of escalation of a number of geopolitical headlines, especially any trade war Twitter bombs, should definitely keep market participants on their toes.
 


Source: Quikstrike

 

#2 It’s becoming almost a daily occurrence to see block trades in SOFR futures. Today we saw several trades in Fed Funds futures vs One Month SOFR futures. Although it’s not entirely clear what has caused the uptick in activity, I would guess that it has something to do with recent FOMC actions and developments and the impending release of the SOFR options.

#3 Interesting trade in EDM0. There has definitely been some action in the 99.00-100.00 strikes over the last couple of months, but I don’t recall this specific trade going through. However, there was a big position established in the 99.50/99.625 call spread last month. My guess is that this player is rolling down their long strike to widen out the call spread. We aggressively priced in a lot of rate cuts at that time, with many futures on the Eurodollar curve reaching contract highs. Paying 1 for the 95/96 and paying 1 for the 93/95 leaves them long from 2 in the 93/96. Making lemonade out of lemons.

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 amarquez@ccmmarkets.com