Interest Rate Option Traders Start Position Squaring Ahead Of Next Week Fed Meeting

January 22, 2020 03:00 PM
Slow interest rate markets and low volumes
Eurodollar Rate Futures mostly higher, volatility mixed
Option pit volume far outpaces screen
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: January 22, 2020

Not much to report here. Tight ranges in futures, minimal economic data, and a looming Fed meeting combine for another yawner.


Big Trades

Feb (EDG0) 98.25 puts, paying 1 on 26K

EDM0 98.375/98.625/98.875 call fly, paying 3 on 10K

April (EDJ0) 98.375 calls vs EDU0 98.375/98.50 call spread, paying 0.5 for the call spread (see note)

EDU0 98.50 calls vs Green Sep (E2U, EDU2) 98.75 calls, selling E2U calls at 1, 20K


Things to Watch in Interest Rate Futures

1) Not entirely sure what the motivation is behind the June call fly. Best guess is that it’s an expression of value, thinking call slope is too high. Being right at the 83 strike, you would definitely be selling call slope in this fly. And if we rally to the 86 strike, then you’d be long call slope, which would probably be desirable at that point.

2) We’ve seen plenty of packages using April calls to finance other positions lately. Last week was vs the EDM0 81/82 put spreads, today vs the EDU0 call spreads. Basically, it seems that these players aren’t too concerned with short term movement in the EDM0 contract and have picked the April expiration because it’s the shortest dated calls with any real value. The only word of caution is that it’s a serial contract and it can technically expire wherever, not where 3M libor is.

3) A curve play! Until today, the only real action we’ve seen in curve plays has been the June/Short June 83 put spread. And that’s been a pretty good trade, so far. This trade, however, I’m not sure the motivation here. The initial thought is position adjustment, but we have not seen much Green Sep trade, so don’t think that’s it. My concern is that in order for the EDU0 85 calls to be in play, I would also think the Green Sep 87 calls may be in danger of going in the money. Most likely, it’s simply a hedge against something done OTC. But that’s not much fun to talk about.



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