Renewed Interest and Trading In Downside Rate Options Since Fed Meeting Last Week

November 5, 2019 02:30 PM
Huge option volume, over 2M+ with floor to screen volume 3:1
Volatility down across the board
Futures down as curve steepens
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: November 5, 2019

Futures in a relatively tight range and options volume perked up overnight. The day session saw option volume really pick up as futures and volatility moved lower throughout the day.

Big Trades 

Short Dec (E0Z) 98.00/98.25/98.50 put tree, selling 40K at 9

5 Yr Jan (FVF0) 118.25/118.75 put spread 1x2, paying 1 on 20K

5 Yr Jan (FVF0) 118/118.5 put spread vs 120.25 call, paying 2.5 for the put spread on 30K

Short March (E0H) 99.25/99.375 call spread, paying 1 on 25K

EDZ0 98.875/99.375 call spread, paying 7-7.5 on 60K (see note)

EDH0/EDM0 98.125/98.25/98.375 put tree stupid, paying 7.5 for the 1 leg in both, 10K

EDH0/EDM0/EDU0 98.125/98.25/98.375 put fly strip, paying 7.5-8 on 50K (see note)

EDU0 99.75/100.00 call spread, paying 0.25 on 10K

EDZ9 98.00 puts, paying 1.25 on 35K


Things to Watch in Interest Rate Futures

#1 Today had the feel of a battleship turning. There has been renewed interest in downside options since the Fed meeting last week, but today it felt like put and put structure buying really picked up steam. Right out of the gate we had huge buys in the put tree stupid and put fly strips, each seeming to adjust the previous view of a cut in December to a Fed on hold. Not entirely sure what the true catalyst was today (perhaps a better than expected Non-manufacturing ISM?). There has been a lot of money on the sidelines and it will be interesting if we will see new capital deployment into downside structures.

#2 The EDZ0 call spread was an interesting trade. The same player was buying the EDU0 98.875/99.375 call spread, paying between 7-8.5 on about 150K. Because these are the same structures at the same prices, it leads me to believe that these are hedges, not fed policy opinions.

#3 Here we go again! Big put fly strip bought today, attempting to pin strikes through September of 2020. The person most excited about this trade was undoubtedly the broker. Regardless, it seems like the right idea, in general. No more hikes and a contraction in the FRA/OIS spread should have EDH0 expiring somewhere between 98.15-98.20. And a Fed on hold all year would make the other flies interesting as well.


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