Treasury Futures Prices Rip Higher As Traders Play Risk-Off Before Weekend

Eurodollar options quiet overnight, lead to active day session
Eurodollar Rate Futures up, volatility way up
Markets continue to focus on and react to virus rumors & short volatility hedging
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: January 31, 2020

Futures trended up all day. The first leg was due to a brutal miss by the Chicago PMI (42.9 vs expected 48.9), although this was later explained away due to Boeing hardships. Most of the bids were due to ongoing virus concerns, as a variety of facts and rumors trickled out all day, highlighted by a report of the first case in NY (later debunked). None the less, it was a flight to safety before the weekend.

Big Trades

EDH1 99.50 calls, paying 3.5 on 10K

EDM0 98.625/98.875/99.125 call fly, paying 1.75 on 25K

EDU0 98.75/99.25 call spread, paying 7.5-8 on 40K

EDZ0 98.125/98.25/98.375 put fly, paying 2 on 10K

Short June (E0M) 98.375 puts, paying 2 on 10K

Short June (E0M, EDM1) 99.25/99.75 call 1x2 (3x) vs EDM1 99.50/99.75 call 1x2 (4x), paying even for the EDM1 (see note)


 

Things to Watch in Interest Rate Futures

1) Wow! What a day. Upside panic drive-by potential pandemic. Volatility through the roof. Here’s an example; EDU0 81 puts were 0.5 bid vs 98.55, about 2K before the pit open. Fast forward to late afternoon, EDU0 is trading 98.61. Surely those puts are well offered, right? Wrong! 0.5 bid on 7K! Want to know where the pain is? Just take a look at what was leading today’s rally, EDM0 & EDU0. I can’t remember the last time the 2nd and 3rd Eurodollar contract lead the way. Remember, the paper has been buying lots of EDM0 call flies and lots of EDU0 calls. As we rally up towards that area, locals have a lot of hedging to do. Something to definitely keep an eye on.

2) The same player that was buying the EDU0 98.75/99.25 call spread is the same player that has been buying the EDU0 98.875 and 99.00 calls, and the 98.875/99.375 call spreads. So now the are long the 87, 88 & 90 calls and short the 92 & 93 calls. Not sure what you call this position. A “Call Full House, Longs Over” perhaps? Either way, it’s making life difficult for locals (see above note).

3) The Short June, EDM1 package is just another version of the trade from Wednesday (selling E0M 92/97 call spread (2x) vs buying the EDM1 95/97 call 1x2 (3x), paying even on 20K). As expected, this was an out for the Short June and a new position for the EDM1. They just adjusted the ratios to keep the premium at zero.

 

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