Eurodollar STIR Put Buying Recently, Not Much Call Selling

Lighter trading volumes
Rates Futures modestly higher, volatility mixed
Interest Rate futures tight ranges, most contracts 4 ticks or less
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: January 15, 2020

Markets had little interest in today’s economic data as the slow start to 2020 continues.

 

Big Trades

EDU0 98.25/98.75 risk reversal, selling the calls for 0.5, 30K (see note)

EDM0 98.125 put vs 98.625/98.75 call spread, paying 0.25 for the call spread, 10K

April (EDJ0) 98.50 call vs EDM0 98.125/98.25 put spread, paying 0.5-0.75 for the put spread, 40K (see note)

EDM0 98.125/98.25 put spread, paying 2.25 vs 98.32 on 15K (see note)

EDH0 98.25/98.375/98.50 call fly, paying 1.5 on 20K

 

Things to Watch in Interest Rate Futures

1) Big overnight trade in the EDU0. Best guess is that it’s a cover of some sort, as there hasn’t been a lot of 82 put buying recently, and certainly not much call selling! Open interest will give us a better idea tomorrow, but it certainly gives you a good idea of where skew is right now. With a futures reference price of 98.405, the puts are only 15.5 ticks out of the money while the calls are 34.5 ticks out of the money!

2) A lot of EDM0 put spreads going through today. The 81/82 spread traded outright and vs selling the April calls. It would seem that the big put fly strip trader (EDH0/EDM0/EDU0 98.125/98.25/98.375 put fly strip, paying 7.5-8 on 150K) is taking off the bottom spread of the EDM0 fly. And why not? They’ve certainly made enough money on this trade, as it was quoted 18.5/19.5 recently. Perhaps they are starting to think we could run through the 82 strike and they want to maximize their return. Pinning strikes is great in theory, rarely good in practice. And this would also make sense given the backdrop in options activity so far this year. We haven’t seen much outright call buying. We are mostly seeing call structures (call spreads, call flies, call tress, etc.). It seems as if there is less conviction of a rate cut going forward. Question is, will the Sep position be next?

3) Well, not exactly the start we were looking for in the SOFR options. Total open interest since trading began on the 6th is 17 contracts. It’s not surprising, as any new contract has to go through a “hazing” period before it catches on. The question is how long will this last? Tough to say at this point. With all the geopolitical happenings dominating traders focus, and an election around the corner, the impending demise of Libor isn’t on the forefront of market concerns right now.

 

 

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