Eurodollar Option Flow Concentrated On Upside Structures As Fed Decision Looms Mid-Week

October 28, 2019 02:07 PM
Quiet overnight leading to decent volume day session
Futures trade in relatively tight ranges
Floor volume far outpaces screen
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: October 28, 2019


Minimal economic news kept futures in a tight range, with total day ranges of 5-6 ticks and day session ranges inside of that. Option flow was concentrated on upside structures as the Fed decision looms at mid-week.

Big Trades 

10 Yr. Jan (TYF0) 130.5/131.5 call spread 1x2, paying even on 20K

5 Yr. Jan (FVF0) 119.5/120/120.5 call tree, paying 2 on 20K

10 Yr. Jan (TYF0) 127.5/131 squash, selling the put for 1, 10K

EDZ9 98.125/98.375/98.625 call fly, selling 25K at 3

EDU0 98.875/99.375 call spread, paying 7 on 15K

EDZ0 98.875/99.375 call spread, paying 8 on 15K

EDZ9 98.25/98.375/98.50 call fly, paying 1 on 30K (see note)

EDM0 99.125/99.25 call spread, paying 1 on 50K (see note)


Things to Watch in Interest Rate Futures

#1 Another interesting late-night trade. The Jan 10 year call 1x2 was blocked at around 10:30 last night. This is the third day in a row where we have seen big block trades go through between 8:30-10:30. This, of course, would line up with Asian trading hours. As to why the recent activity, it’s still unclear. My initial thought was that positions were being moved around on an intrabank basis. My reasoning was because the prices reported were well through expected bids and offers. And these haven’t been small trades, either. 20-30K size on multilegged strategies. Of course, it could simply be a new player getting raked over the coals during relatively illiquid trading hours. Stay tuned!

#2 I’ve talked about this at length, but it’s difficult to pin strikes, especially in Dec contracts. Our EDZ9 call fly buyer was back today, adding another 30K to the position, which now approaches a total of 150K. Again, this would need both 50 bps worthy of cuts and a contraction in FRA/OIS of about 15-20 bps. Predicting where FRA/OIS will be as we near year-end will be a tall task. In addition, as we approach the FOMC decision day, there are a variety of economists and other market pundits making calls about the expected Fed trajectory. Seems that a vast majority expect 25 bps this week, but after that it’s uncertain. A 25 bps cut and hold won’t help this call fly. But, in the spirit of good sportsmanship, 1 tick is cheap!

#3 The EDM0 call spread was bought last week as well. The EDZ9 82/83 call spread was sold against it late in the week. The EDZ9 was a closing trade, while the EDM0 had mixed change in open interest. The initial thought was that it was a strike adjustment. However, today’s action would suggest otherwise. Open interest will give us a better idea tomorrow, but typically whenever I see a 12.5 call spread trade in strikes that are 50+ bps away, my assumption is that it’s a hedge for something. As to what that may be, your guess is as good as mine.

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