Active Option Trades - EDM0 Is Only Contract That Captures A Fed Meeting

February 20, 2020 03:00 PM
Massive call buying this week in EDM0 call options
Eurodollar Futures and volatility higher across the curve
Markets remain sensitive to virus news, especially towards the end of the week
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: February 20, 2020

Markets were relatively quiet overnight, with futures trading in a tight range. A huge Philly Fed number was met with little enthusiasm but a later virus scare caused a quick spike in futures.

Big Trades

Short Sep (E0U, EDU1) 98.375 puts, sold 20K at 4.5 vs 98.745

EDM0 98.625/98.875 call spread, paying 3.5 on 13.5K

April (EDJ0) 98.375/98.625 risk reversal, paying 1.5 for the call, 20K

Short April (E0J, EDM1) 98.625 put, paying 5.5 on 10K

EDU0 98.50/98.625 call spread vs Short Sep (E0U, EDU1) 98.375 puts, selling the puts at 0.5-1.0, 50K (see note)

Short April (E0J, EDM1) 98.375/98.50 put spread, selling 15K at 1.25

EDM0 98.75 calls, paying 4.25 on 40K (see note)


Things to Watch in Interest Rate Futures

1) The markets continue to be unimpressed with economic data but hypersensitive to any news about the COVID-19 virus. Around mid-morning, there was an article circulating that 36 new virus cases had been reposted at a central Beijing hospital, up from 9 cases two weeks earlier. The concern was a spread to the capital from the epicenter of Wuhan. Futures spiked up to their highs of the day as the news came out, only to retreat form the highs as the afternoon progressed. Just another reminder of where the pain lies. The first “panic rally” was painful and we’ve only seen more call buying by paper since then.

2) Big call spread in EDU0 vs Short Sep puts. The Puts look to be an out, as these were bought back on 2/10 (paying 5 on 40K, futures reference 98.75, ATM vol reference 67.32). As for the EDU0 side of the trade, tough to say what that is. It could be a new position, but my guess is some sort of strike adjustment.

3) Interesting week in EDM0 so far. Massive call buying this week.

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Today we saw more buying in the 87 calls. Not entirely sure where this coming from, I have heard a few different ideas. Regardless, it’s not short covering, which will only add to the already massive positions in EDM0 & EDU0 calls. The focus may be virus related or perhaps the recent report saying that FRA/OIS could go negative by mid-year. And don’t forget, EDM0 is the only contract that captures a Fed meeting.



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