ED Futures and Options Market Recap: November 15, 2019

Quiet overnight session leads to a muted day trading session as futures bounced within a narrow range, mostly between 3 and 4 ticks.
Big Interest Rate Trades 

Wednesday:

EDU0 98.00/98.75 risk reversal, selling the calls at 4.5, 80K (see note)

EDZ0 99.25 calls, paying 4 on 25K

Thursday:

Short Feb (E0G, EDH1) 98.625/98.75 call spread 1x2, selling 2 legs at 1.5, 40K (see note)

EDM0 98.625/98.875/99.125/99.375 call condor, EDU0 98.75/99.00/99.25/99.50 call condor as a stupid, paying 5.75 on 10K

EDH0 98.75/98.00/98.125 put tree, paying 0.5 for 20K

EDG0 98.75/99.25 call spread, paying 1 on 40K (see note)

Friday:

EDH0/EDM0/EDU0 98.125/98.25/98.375 put fly strip, paying 10 on 15K (see note)

EDH0 98.00/98.25 put spread vs 98.375/98.625 call spread, selling the call spread at .25 vs 98.32, 10K

EDZ0 99.50/99.75/100.00 call fly, paying 0.5 on 20K (see note)

EDH0 98.00/98.125/98.25 put fly, paying 2.75 on 20K

Things to Watch in Interest Rate Futures
 

1) Pinning strikes in 2020! Adding to the existing put fly strip, the total position is now around 75K. To reach full value, we would need to see the Fed on hold and a contraction of the FRA/OIS spread from its current levels, which has been in the 37-41 bps range. Looking back to last March, FRA/OIS was trading near 20. A move down to that level would certainly put those contracts near the target of 98.25.

2) Return of a popular trade in the EDZ0. Not sure if this was a new position or some sort of strike adjustment. But it definitely falls within the concept of some earlier EDZ0 trades. This past summer we saw huge positions established in the 92/95/97/100 call condors and the 93/96/97/100 call condors. These trades all look for a return to a low interest rate environment, or at least protection if that is the case. I would also suggest that they show a lack of conviction in the negative rates scenario. While these trades haven’t been as popular as of late due to the belief that the Fed is on hold, it leads me to believe that this player was looking for some cheap upside protection. Heck, we’ve all spent half a tick worse!

3) Interesting trade in the EDH0 put fly. What I think happened here is that the buying in the 81/82/83 put fly strip cheapened up the 80/81/82 put fly so much that it was an attractive buy. By taking advantage of local’s positioning, this player was able to scoop up a 12.5 bps lower fly for 1.5 ticks less. Depending on where FRA/OIS ends up, these could be in play.