INTEREST RATES RECAP - What Is "Short Mullet" Option Trade?

November 12, 2019 02:30 PM
Light overnight volume
Futures mostly up, volatility lower
Options volume takes a breather form lasts week’s elevated activity
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: November 12, 2019

Futures put in their lows early in the session. Once the equities opened, futures marched steadily higher, reaching the top of their session range by midday, closing just off those levels.

Big Trades 

Short Feb (E0G, EDH1) 98.50/98.625 call spread 1x2, selling 2 legs at 1.5 (see note)

Short March (E0H, EDH1)/Short Mullet Dec (E0Z0, EDZ21) 99.25/99.75 call spread, paying 4.25 for the E0Z0, 75K (see note)

EDZ0 98.75/99.25 call spread, paying 7 on 20K (see note)

Jan (EDF0, EDH0) 98.50/99.00 call spread, paying 1 on 20K

EDH0 98.00 puts, paying 0.75 on 25K


Things to Watch in Interest Rate Futures

1)  The Short Feb trade occurred yesterday evening. There has been a lot of activity between the hours of 6:00-11:00 for block trades over the last several weeks. This points to an active participant during the Asian trading hours. The only problem is that this player is giving up a lot of edge to get these trades done, typically about a tick through the prevailing bid or offer. As for this particular trade, a week ago the 98.625/98.75/98.875 call tree was bought, 40K at roughly the same time. Looks like they decided to roll that long call tree into a long call ladder (long the 85 calls, short the 86/87/88 calls).

2) Another big roll. The Short March, Short Mullet Dec trade is rolling expiration out the curve. Total position is approaching 200K, which would fully roll the Short March position.

What is Short Mullet Dec? A longer-dated midcurve option. It will expire in December of 2020 (as opposed to December of 2019 for the regular Short Dec contract) and actually trades off the EDZ1 contract (EDZ0 for Short Dec). Get it? Mullet? Short in the front (Dec 2020), long in the back (2021). Business up front, party in the back. But it’s a lonely party, to be sure. Not a lot of liquidity in those contracts. And that was the most surprising aspect of this trade, finding enough liquidity to do nearly 200K call spreads is impressive. I would think that holding those positions is a risk manager’s nightmare!


3) Interesting trade in the EDZ0. Recall that there has been a buyer of the 98.875/99.375 call spread over the last couple of weeks. And before that, a buyer of the EDU0 98.875/99.375 call spread as well. Now today we see the 98.75/99.25 call spread being bought for 7 ticks. Interestingly, the EDU0 and the EDZ0 have been bought at around the same prices. EDU0 was mostly bought at 7.5, but the range was 7-8.5. The EDZ0 was bought mostly at 7, and that range was 5.5-8 (I think the 5.5-6’s were a bit of luck, as they were bought last Thursday when futures were breaking hard. Started buying 6.5’s). Not sure if this is an expression of policy opinion or a hedge. All we know is its new risk and this player knows what price they want to pay. Don’t be surprised to see more of these trade down to 6.


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