Interest Rate Recap: Whale Traders Focus On Upside Option Structures Post NFP

Healthy Eurodollar STIR volumes in options
Eurodollar Futures and volatility lower
Floor outpaces the screen in options volume
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: December 6, 2019

The relatively quiet overnight session was interrupted by blowout employment numbers, which moved futures swiftly lower. As the day wore on and things settled down, futures rallied back to near mid-range, where they settled.


Big Eurodollar Option Trades

Short Jan (E0F) 98.375 puts vs Short Feb (E0G) 98.25/98.375 put spread, paying 0.5 for the put spread, 40K (see note)

Jan (EDF0) 98.25 puts, paying 1.75 on 20K

EDU0 98.125 puts vs 98.75/99.00 call spread, paying even for call spread, 20K (see note)

EDH0 98.25 puts vs 98.375/98.50 call spread, paying 1.5 for the call spread, 20K

EDU0 98.875/99.375 call spread, paying 4.5 on 20K

EDU0 98.75/99.25 call spread, paying 6 on 20K

Short Jan (E0F) 98.375 puts vs Short Feb (E0G) 98.75 calls, paying 0.5 for the call, 40K (see note)

10 Yr Jan (TYF0)/10 Yr Feb (TYG0) 130 call spread, paying 14-15, 100K


Things to Watch in Interest Rate Futures

1) Looks like our Asian Trading Hour Block Trader is back, but perhaps trying to get better levels by operating during London & US hours. The first indication was the 40K E0F/E0G trade overnight. This player was long those puts from buying the E0F 98.375/98.75 risk reversal (paid 2.75 on 80K, futures reference level 98.50, ATM vol reference level 70.32 ABPV). With the futures trading right around 98.50 at the time, and the current market for the risky being 0.5/1.5 for the put, it gives you a good idea what vol has done since the trade was initiated (current ATM vol reference is 66.70 ABPV). The E0G put spread is new, so it may be looking to extend his duration and spend less by buying the put spread. Then, during US trading hours, we saw the second trade, this time selling the E0F puts vs buying the E0G 87 calls. This would also fit the position as this player is short 120K of those calls from previous trades.

2) An absolute cracker of an employment number saw futures and volatility retreat to the low levels of the day. And what was the options market response? Well, buy upside, of course! Just about every trade we saw in the immediate aftermath of the NFP was buying calls, call spreads and call spreads vs selling puts. So there you have it. The specter of lingering trade war disputes and the resultant tariffs versus the potential of inflation picking up and an economy overheating is still tilted one way!

3) Big trade in the 10 Year options. All traded on the screen. My first assumption was rolling. However, after looking at the open interest for the Jan 130 call (~79K), it looks more like a new position. As for the motivation, being that they are the next two serial expirations (TYF0 expires 12/27/19, TYG0 expires 1/24/20) you get the feeling that it’s a theta play. Maybe hoping that we sit here, and the Jan calls erode. But there is some potential market-moving news coming up with the Fed next week and the looming trade war deadline. It should be an interesting few weeks!


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