Rumors Of Eurodollar Option Local Group Blowup Not Making Sense

February 27, 2020 03:00 PM
Eurodollar Option call structures the trade of the day
EDM0 and EDU0 lead futures curve up
Near record volume, just shy of 6M contracts
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: February 27, 2020

Massive volumes were driven by the only thing that matters right now, virus updates. Futures rallied straight up into the equity open and then followed the stocks lead for the rest of the session. A late morning drift lower had traders wondering if we were going to be flat on the day in equities, only to find new legs lower into the afternoon. Eurodollar futures ended the day off their highs, but well off their lows.

Big Trades

April (EDJ0) 98.875/99.00 call spread, paying 2.75 on 100K

April (EDJ0) 98.875/99.00 call spread (4x) vs EDM0 99.25 calls, paying 9.5 for 25K (+100K x -25K)

April (EDJ0) 98.625/98.75 calls spread vs 98.625 puts, paying 1.75-2.5 on 75K

EDM0 98.625/98.875 calls spread, selling 80K at 10.5 (see note)

EDM0 98.625/98.75 call spread, selling 50K at 6

EDM0 98.25 puts, paying 0.5 on 110K

EDM0 99.50 calls, paying 1.25 on 125K

EDM0 99.75/100.00 call spread, paying 0.5 on 350K (see note)

August (EDQ0) 99.50/99.75 call spread, paying 2.25 on 75K

July (EDN0) 99.25 calls, paying 1.5 on 100K

Short June (E0M) 98.375 puts, paying 1 on 40K

EDZ0 98.125/98.375 put spread, paying 2.5 on 20K


Things to Watch in Interest Rate Futures

1) So many big trades went through today. Lots of calls! The EDM0 86/88 call spread was an out. Just in case you forgot, these were bought LAST WEEK! Player paid 3.5 for these spreads. Same for the 86/87 call spreads, paid 2.25 for those. The April call spreads traded on blocks before the pit open, then traded another 100K tied to the June puts. Plenty of 99.25-99.75 calls were bought, in spreads and outright. But there were some puts bought. E0M puts were a cover from the EDM0/E0M 83 put spreads that were bought earlier this year. The EDZ0 put spreads look to be a new position, though. And the EDM0 98.25 puts are too difficult to tell. Remember when everyone was pinning the 98.25 strike through EDU0? Ahh, good times.

2) Yeah, that’s right. 350 THOUSAND call spreads were bought in June. This position is looking for a move back to the zero lower bound in rates. With the EDM0 contract expiring after the June FOMC meeting, this covers the next three Fed decisions. That’s a lot to ask in that amount of time! Of course, it could be some sort of risk manager special or a hedge against some OTC trade, as the premium outlay was “only” $4.4M. But that’s not very fun to talk about.

3) One aspect of today’s action, and really all week, is that I was expecting to hear about local groups getting trouble on this move. But that hasn’t really been the case. I’m guessing has to do with the fact that paper was selling calls on the way up. You could have bought all you wanted the last few days, which is why the pit seemed the loudest when there was any EDM0 or EDU0 call selling. Also, the call skew has been firm. My understanding of the last episode in 2019 that resulted in some local casualties is the call skew was moving so much that it made hedging very difficult. Basically, we rallied to where locals wear short and they were underhedged, so they got chewed up buying futures to get delta neutral. Not the case this time around.


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