Do You Want to Sell The Eurodollar Dec21 Par Calls?

October 16, 2019 02:07 PM
Futures higher on the day
Below average option volume, with floor activity outpacing screen
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: October 16, 2019

Slow overnight, minimal option activity. Without any real data points, Eurodollar futures traded higher and clung to the news of an announcement of a  Brexit deal.

Big Trades (last few days)

Jan (EDF0) 98.875/99.00 call spread, paying 0.5 on 20K

Green Nov (E2X, EDZ1) 98.125/98.375 put spread 1x2, paying 2.5 on 10K

EDZ1 99.75/100.00 call spread, paying 1.5 on 10K (see note)

EDZ9 98.25/98.375/98.50 call fly, paying 1.25 on 25K (see note)

Dec 10 Yr (TYZ9) 128.5/132.5 strangle, selling 20K at ’28-’27


Things to Watch in Interest Rate Futures

#1 Interesting trade in the EDZ1 call spread. Not sure if this is a new trade or perhaps rolling out some shorts, as the paper was a big buyer of the 99.50/99.75 call spread 1x2.

Source: QuikStrike

However, the more interesting aspect of this trade has more to do with the vol curve of EDZ1. As you can see, EDZ0 looks substantially different than EDZ1 (and I’ve written about this several times). Therefore, regardless of the intent behind this trade, the timing suggests that this player is getting ahead of the curve by selling those 100.00 calls.

 #2 More pinning of strikes in December options. Looks to me like this player is adding to an already existing position (paid 1.5 on 50K earlier this month). As for the strategy, I would say this player is looking for 50 bps cuts. But again, pinning strikes in Eurodollars, especially in Dec contracts, is exceedingly difficult. Notoriously fickle due to year-end funding, the Dec contract has additional concerns about the level of FRA/OIS.

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Source: Bloomberg

As you can see, we’ve had quite a move. As for the reason for those moves, well that goes beyond the scope of this post. But I think it’s safe to say that the moves we’ve seen over the last month have been repo related. Those issues may be one-off, or they may rear their head again as we approach the year-end. Either way, it will be tough to say exactly where EDZ9 will go out, but then again, this player didn’t pay a lot in premium.


#3 During the Great Repo Debacle of 2019, we saw a huge increase in SOFR activity. Action has slowed quite a bit recently, but we did see a block trade yesterday in the Feb 1 Mo. SOFR futures (SR1G0) vs Feb fed Funds (FFG0), paying -2.5 on 3K.

Source: QuikStrike

As noted previously, we had some big moves in September and some savvy players saw an opportunity to take advantage of mispricing in these spreads. It will be interesting to see if the activity picks up again as we approach the year-end and the launch of SOFR options in January. Stay tuned!

About the Author

Albert Marquez is a Chicago-based options and futures broker, specializing in interest rates. You can reach Albert on Twitter@STIR_Report or