Eurodollar Options Trader Targeting 98.625 Strike Price

February 3, 2020 03:00 PM
Eurodollar options active overnight session with 400K traded
Eurodollar Rate futures and volatility lower
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: February 3, 2020

Following last week's frantic move, and absent any further escalating developments over the weekend, volatility pulled back from its recent highs. Robust ISM numbers didn’t seem to faze market participants much, as these were recorded prior to the recent virus outbreak and should look very different going forward. Futures were lower on the day, although off their lows made following the equity open.

Big Trades

EDM0 98.625/98.75 call spread, paying 2.5 on 90K (see note)

April (EDJ0)/EDM0 98.25 put spread, paying 1 for the EDM0, 25K

April (EDJ0) 98.375/98.50/98.625 call tree, paying 2 for the 1 leg on 18K

Short May 98.875/99.125/99.25 call tree, paying 2.5 for the 1 leg on 14K

EDM0 98.625/98.875/99.125 call fly, paying 1.75 on 11K


Things to Watch in Interest Rate Futures

1) Not a big trade, but interesting none the less, was the EDM0 98.375 put vs the Short June (E0M, EDM1) 98.50 puts, paying 0.75 for the EDM0. If it sounds familiar, it’s because it is, sort of. Starting right after the beginning of the year, we saw a large buyer of the EDM0/E0M 98.375 put spreads, paying 1-1.25. Futures pulled back a bit, so they came back and bought the EDM0 98.25/98.375 put spread vs E0M 98.125/98.375 put spread, in order to keep the premium low, paying 1 for the EDM0. Then futures moved back up and we saw more of the put spreads bought from 1-1.25. All total, probably around 75K of the 98.375 strikes were traded. And it’s worked, as the 83 put spread is currently around 3.5 ticks for the June. The theory is that the EDM0 will make it way towards the 98.25 strike (but probably end somewhere between 98.28-98.31) while the time decay in the short-dated put will pick up steam as we approach expiration. We saw some same structures done in July and Sep expirations as well, but nowhere near the same size. Which brings us to today’s trade. A copycat trade that takes a bit more risk by moving the E0M strike closer to at-the-money. I guess they just got tired of watching everyone else buy the 83 strike in June and he wanted to be part of the “locker room celebration” when it eventually pays off. Because pinning strikes is easy, right?

2) Big June call spread going through today, all on the screen. Paper has definitely been targeting that 98.625 strike. Just look at all the 98.625/98.875/99.125 call flies they have bought over the last several weeks. So why now with the 86/87 call spread? Could be our call fly buyer adjusting some strikes in a massive position. Generally, when I see call spreads that are 12.5 ticks wide, my first thought is that it’s a hedge against some big OTC trade. We won’t know that with any degree of certainty, but open interest will give a better picture tomorrow.

3) After some call trees traded today, I found my thoughts wandering back to the Asian Hour Block Trader. Remember this player? Here’s a refresher:

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After last week's move, they aren’t looking so great. Directionally they were correct, but the killer has been the volatility movement.

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Source: Quikstrike

As an example, the EDH1 98.625/98.875/99.00 call tree was quoted at 4-4.5 for the 2 legs (futures reference 98.75). This player sold the 2 legs at 0.75. Keep an eye on this position, as we may see some adjustments coming up.


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