Interest Rate Recap: Massive Moves Higher In Eurodollar Prices, Option Volatility Soars

December 3, 2019 02:30 PM
Massive move up in futures, led by Green expiration, which had 14.5-18 tick ranges
Huge move up in volatility across the curve
Option volume subdued given move in futures
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: December 3, 2019

Quiet overnight session disrupted by China trade talk headlines. Trump signaled a willingness to move forward with the tariffs if a deal isn’t struck by the mid-December deadline. Adding fuel to the fire, he also threatened action against France, Brazil and Argentina over steel. The result was a steady climb higher all day, with futures closing near their high for the days. As has been the trend, volatility also moved higher across the curve.


Big Eurodollar Option Trades

EDM0 98.50/98.75 call spread, paying 5 on 25K (see note)

April (EDJ0)/EDM0 98.125/98.25/98.375 put fly spread, paying 0.25 on 10K (see note)

Feb (EDG0) 98.50/98.625/98.75 call tree, paying 0.25 on 47K (see note)

EDM0 98.25/98.375 put spread, paying 6.5 on 10K

EDU0 99.00 calls, selling 10K at 5


Things to Watch in Interest Rate Futures

1) More action in the June call spreads. These have been in vogue for the last couple of weeks. Paper has bought about 150K of these call spreads, usually vs selling the 98.25/98.375 put spreads. Guessing they felt even better about their position after the early morning trade news and simply added to the call spread.

2) Interesting trade in April, June put fly spread. The timing of the trade came after Futures Magazine put out a trade idea by Pricing Monkey relating to the Jan (EDF0), June version of this trade. Perhaps this player wanted a cheaper version of the fly while still taking advantage of local positioning in the June fly. Either way, the spirit of the trade was in line with the thinking that June was just too expensive, which has been buoyed by the put fly strip buyer.

3) Not sure the motivation for the EDG0 trade. There has been a lot of action in these strikes in the past, so quite possibly a position adjustment. Open interest will give us a better read on that tomorrow. However, if it is a directional trade, after today’s trade war headlines and move in futures, it’s possible to envision a scenario with this trade paying off if in fact the mid-December deadline isn’t met and the Trump administration follows through with imposing tariffs. As the saying goes, we’ve all spent 0.25 ticks worse!


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