Traders Look Ahead To NFP Report Tomorrow

All traders focused on NFP tomorrow
Rates Futures slightly higher, volatility mixed
Interest Rate futures large overnight volume, muted day volume
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: January 9, 2020

Futures traded in a tight range, 4-5 ticks for most contracts. With no real economic news and geopolitical noise on hold, the day session was mostly quiet as traders look ahead to tomorrow’s NFP release.

Big Trades

EDH1 98.50/98.75/99.00 call tree, selling 2 legs at 1, 20K (see note)

April (EDJ0) 98.375 call vs EDM0 98.25/98.375 put spread 1x2, paying 1 for the EDM0, 15K

Short June (E0M) 98.50 calls, paying 14.5 on 10K

EDM0 98.125/98.375 put spread vs Short June (E0M) 98.375 put, paying 0.25 for EDM0, 10K (see note)

EDU0 98.875 calls, paying 3 on 10K

EDM0/Short Jun (E0M) 98.375 put spread, paying 1-1.25 on 20K (see note)

 

Things to Watch in Interest Rate Futures

1) Back at it! Looks like our Asian Hour Block Trader is back from holiday. The action started on Monday with EDZ0 call trees and call 1x2’s. Tuesday saw an add to the call trees. Wednesday was a move to the EDH1 expiration, once again buying call trees for size. On Thursday this player added another EDH1 call tree with different strikes, but the same flavor.

Asian Block Trades 010920.png

As we saw last year, this player likes to operate in lots of 20K to 40K and loves trees, especially when they get paid to put them on. Both of the EDH1 trees were done for a credit. Looks like the expectation is for the market to price in a 50 bps cut by the Fed in late 2020/early 2021. Currently, the market is looking for 25 bps in 2021. And if not, well then he got paid to put it on!

 2) Paper has been putting on a bear flattener in the EDM0 & EDM1 expirations this week. The first trade was the 83 put spread on Tuesday. Yesterday was put spread spread involving the 83 strikes in both contracts. Today we saw the EDM0 81/83 put spread vs the E0M 83 puts, then later in the day more of the 83 put spreads. All total, this player bought about 50K of the put spread and another 30K of spreads involving the 83 strike. Looks like they are taking advantage of the recent rally in futures and looking for a retrace and a stable EDM0/EDM1 spread. The futures spread is currently -14.5/-14. With a Fed on hold it’s easy to envision a drift back down in EDM0 to the 98.25 strike. Even if that spread gets back to -10, that would put the June put well into the money and the EDM1 near the 98.375 strike. Not bad…

EDM0 EDM1 010920.png
Source: Quikstrike

 3) Well, the SOFR options are off to a slow start. So far, the only trade has been a 5 lot of Dec 98.625 straddles. And there’s a good chance those were done as a test for back-office processing! It will be an uphill battle, typical of new products, but we have seen this already with the futures contracts. The 1M SOFR futures have been especially active spread against the Fed Funds futures. This makes me wonder if we may see SOFR vs Eurodollars spreads before we see outright SOFR options trades. Time will tell!

 

About the Author

Albert Marquez works for Chicago Capital Markets (CCM) and covers Eurodollar & Treasury Options and Futures. Albert can be reached  on Twitter @STIR_Report or amarquez@ccmmarkets.com