Hawkish Fed Target Rate Cut of 25 Basis Points, Traders Look Ahead to December Meeting

Low overnight action
Futures higher and volatility end lower
Volume improved over previous sessions, with floor outpacing the screen
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: October 30, 2019

Tight futures trading ranges overnight with minimal option activity. Futures traded down to the low end of their range following the release Q3 GDP numbers. Drifted higher as market participants waited for the FOMC decision. Following FOMC, futures initially turned lower and then traded higher after 2:00 pm CST close. Volatility ended lower.

Big Trades 

Monday 10/29:

5 Yr. Dec (FVZ9) 119/119.5 call spread 1x3, selling 3 legs at 1.5, 10K

Short Jan (E0F, EDH1) 98.75/99.00 call spread with Short March (E0H, EDH1) 99.00/99.25 call spread, paying 6.25 on 30K

EDZ9 98.75/99.00 call spread vs EDM0 99.125/99.25 call spread, selling the EDZ9 at 0.25, 20K

Tuesday 10/30:

Short Jan (E0F, EDH1) 98.75/99.00 call spread with Short March (E0H, EDH1) 99.00/99.25 call spread, paying 5.5 on 10K (see note)

EDH0 98.125/98.25 put spread 1x2, paying 1.25 on 10K

EDH0/EDM0 98.375 put spread, selling EDM0 at 1, 15K

Jan (EDF0) 98.875/99.00 call spread, paying 0.5 on 10K

EDH0 98.75/99.00 call spread 1x2, paying even for the 1 leg, 20K

Nov (EDX9) 98.00 puts with the EDZ9 97.875/98.00 put spread, sold 30K at 1.5 (see note)

Nov (EDX9) 98.00/98.125 strangle, selling 25K at 2.5-2.25 (see note)


Things to Watch in Interest Rate Futures

#1 Powell & Co. gave us a hawkish cut today. The main focus seemed to be the omitting of the “act as appropriate” line in their statement. This gave the market the sense that we are pausing and that a Dec cut is probably off the table. What about that big player who bought the EDZ9 98.25/98.375/98.50 call fly? Guessing that probably goes out worthless. But then again, they didn’t pay a lot for them either.

#2 Speaking of Powell, not a big reaction to the cut in the options market. However, after Powell started talking at 1:30 CST, futures edged down, vol came in and we saw a lot of EDX9 & EDZ9 action. The Fed’s indication that the current stance of monetary policy was “likely to remain appropriate” if economic data continues to unfold as the Fed expects probably put a lid on the EDZ9 contract, especially since it expires after the Dec Fed meeting. Lots of 98.00 puts were sold in both EDX9 and EDZ9. Aside from funding potential funding issues, looks like the EDZ9 could be stranded here at this level.

#3 After the number, big seller of the Nov strangle. Sold small amount (<1K) at 2.75, a few thousand at 2.5 and the bulk at 2.25. This trade makes a lot of sense given the Fed’s statement today.

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 stirreport@gmail.com.