Trade Idea Eurodollar Rate Options: Option Volatility and Skew Trade

Futures Options Trade Idea

Futures Options Trade Idea

 

EDM 85/88 Call Spread + EDM 87/90 Call Spread -EDM 83/81 1×2 Put Spread– Trade Analysis

 

Trade Idea: 

 

EDM 85/88 Call Spread + EDM 87/90 Call Spread -EDM 83/81 1×2 Put Spread with 210 days to expiry 70.4% Delta

This is a variation on a trade we looked at late Friday, but uses 1×2 Put Spreads to finance a very bullish upside structure (in June here). It provides a hedge for any inflation talk that seems to be increasingly creeping into conversions + sits nicely at the start of the election debate next year. Should trade around 0 on a move down to 98.36.

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Looking at all the strikes versus the Skew profile shows a pretty good RV fit.

Risk & Return

Back testing shows a gross return of 14.1 ticks over 10 years. A quick stress test using a few overrides on Data & Vol also show the trade to be pretty robust. Also a rough VAR test, here best & worse overnight result over 3 years looks good, with a low of -0.048 and high of 0.091.

 

Just remember, this is a trade idea only and not investment advice. Do your own research and consider your risk tolerance. Know your risk.

Disclosure: We may have trading positions in the same or highly correlated trading structures. 

 

 

 
About the Author

George Austin is a co-founder of Pricing Monkey. Pricing Monkey provides financial derivative pricing and analytics software that helps improve understanding of complex derivative positions.