Interest Rate Focus Continues On Call Structures and Risk-Off Heading Into The Weekend

Eurodollar Option big flows continue to be the theme of the week
Eurodollar Futures and option volatility higher across the curve
Another big overnight session with 1.3M contracts traded before the pit open
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: February 28, 2020

As has been the case all week, futures driven higher on virus fears. Focus continues to be calls and call structures. Risk-off heading into the weekend.

Big Trades

EDH0 98.625/98.75/98.875/99.00 call condor, paying 1.75 on 20K

EDH0 98.625/98.75 call spread, paying 3 on 72K

EDH0 98.625/98.875 call spread, paying 4-4.5 on 60K

EDM0 99.75/100.00 call spread, paying 1.5 on 25K

EDH0 98.75/98.875 call 1x2, paying  -0.25 (credit) to even on 110K

May (EDK0) 99.00/99.125 call spread, paying 3.25 on 20K

EDH0 99.00/99.25 call spread paying 1 on 30K

May (EDK0) 99.25/99.50/99.75 call fly, paying 2 on 40K

EDM0 98.625/98.875/99.25 call fly, selling 100K at 2.5 (see note)

Short Dec (E0Z) 100.00 calls, paying 2.5 on 80K (see note)


 

Things to Watch in Interest Rate Futures

1) Wow! What a week. We traded 20.7M contracts from Monday through Thursday. I don’t know where today will end up, but I have to believe it will be north of 5M. Relentless call buying. One interesting observation is that once we start getting into the 99.50-100.00 strikes, it’s common to see 1x2 call spreads. This week we saw more call spreads (1 to 1). It makes you wonder if traders are contemplating a world of negative rates?

2) What appears to be a call structure seller is actually a roll. The June call flies are a roll of a previous position. Last week we had a lot of June call buying, including the 98.625/98.875 call spread (paying 3.5 on about 150K). So they sell the call fly and stay long the 98.875/99.25 call spread. Take some profits off the table and stay in the game. Now that’s a scalable trade!

3) We’ve seen buying of the 100.00 calls before. Usually, it’s in the form of a call strip, such as the Red Par Strip (i.e. EDH1/EDM1/EDU1/EDZ1 100.00 call strip). I don’t recall seeing any size trades of one particular 100.00 call before today. But 80K is a big bet on 0% rates!

 

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