Interest Rate Futures Trended Down All Day

February 4, 2020 03:00 PM
Eurodollar options good volume, with about 1.5M contracts traded
Eurodollar Rate futures and volatility lower across the board
Outside markets risk-on theme
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: February 4, 2020

Futures trended down all day, taking their cue from equities. It seems as if last weeks panic has subsided. Big ranges in futures, with many contracts seeing 12+ ticks.

Big Trades

EDH1 98.50/98.75 call spread, selling 20K at 11 (see note)

EDH0 98.375/98.50 call spread, selling 50K at 1.5 (see note)

EDU0 98.50 puts, selling 10K at 12

EDZ0 98.75 calls, selling at 20K at 12 (see note)

Short June (E0M, EDM1) 98.375/98.50/98.625 put tree, paying 3 on 65K (see note)


Things to Watch in Interest Rate Futures


1) How about that for timing! Yesterday I highlighted the Asian Block Trader and their current predicament with regards to being on the wrong side of the recent move in volatility. I had guessed that at some point we would see some activity from them as they adjust their position. And today was the day. Looks like they sold the EDH1 call spread to make their EDH1 position more closely reflect their EDZ0 position.

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2) The EDH0 trade was a bit odd to me. Paper is certainly long that call spread bought a lot vs selling the 98.125 and 98.25 puts. However, some of those were put on when we were trading up around 98.54, so it hasn’t been great. The interesting part is why wasn’t this done on Friday? We had a huge move, so why not sell into the strength, a least on a portion? Of course, hindsight is 20/20 and we are all first-round draft picks at the Monday morning quarterback position. It almost feels like they are seeing something trading, perhaps in the OTC market, that makes them believe we are going to sit here for a while. The EDZ0 call sales and the E0M put trees would seem to back that view.

3) Last week during the furious rally I noted that the Eurodollar curve was lead up by the EDM0 and EDU0 contracts. As we are selling off, we are seeing more orderly curve action. It seems as though locals on the way up are dealing with very specific delta hedging issues in the two aforementioned contracts, so they are buying those futures, or even futures spreads, to cover their exposure. On the way down, they scramble to sell volatility, which may be more spread out across the curve. Just look at the way they hit volatility today.

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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