After Disappointing ISM Report, Futures Rally and Paper Buys Eurodollar 97.75 Puts

Better volume than previous session
Futures and volatility higher
Floor volume slightly outpaces screen
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: October 1, 2019
 

Relatively quiet overnight session as futures hover above their range lows. That all changed at 9:00 with the release of the ISM Manufacturing numbers, which disappointed with the lowest reading since 2009. Futures spiked to their session highs and settled near those highs.

Big Trades
 

EDZ9 98.25/98.375/98.50 call fly, paying 1 on 15K

EDZ9 97.75 puts, paying 1 (vs 98.09) on 10K & 1.25 (vs 98.055) on 30K (see note)

EDZ9 98.375/98.625 call spread 1x2, paying 0.25-0.50 on 40K (see note)

 

Things to Watch in Interest Rate Futures
 

#1 Yuck. That was an ugly ISM Manufacturing number. You must go all the way back to 2009 to find worse numbers. And with that, the chances for a Fed cut in Oct increased quite a bit, the scale of which depends on your preferred metric. Regardless, October is back on the table. And if we are to believe the numbers, then we have effectively conjured up the US, and potentially global, manufacturing recession through bad policy.

#2 Shortly after that disappointing number, the paper came in and bought the EDZ9 77 puts. That was the loudest the pit has been this week, and maybe last week. They have been buying these for a while. Obviously, they are cheap options and this player probably recognized that although we would be going higher, the subsequent increase in volatility would work against him, so he quickly scooped them up. As for the strategy, if we manage to finish the year without any more rate cuts, those are probably looking good.

#3 Another opportunistic buy was the call EDZ9 call 1x2. This player was taking advantage of the recent move in call slope. Looks good here, as a continued push higher will move those calls down the call slope. The only issue is moving too high, of course. But we shouldn’t go through the top strike by December, right? Bueller? Bueller?

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