Eurodollar Interest Rate Call Options Slope Flattens

March 4, 2020 03:00 PM
Eurodollar Option huge volumes continue to be the norm
Eurodollar Futures higher with volatility mostly lower
Lots of trades focused on adjusting positions to reflect recent moves
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: March 4, 2020

Futures traded in a back and forth range, putting the day lows just before the pit open and the day highs shortly after the equity open. The focus continues to be the virus and the Fed’s response. Bullard’s comments about fed policy rate being “at the right place for now” and warning against anticipating a March cut did move futures off their highs.

Big Trades

July (EDN0) 99.125 put vs 99.375/99.625 call spread, paying 5.5 on 40K

EDM0 99.25/99.50 call spread vs Short June (E0M, EDM1) 99.50/99.75 call spread, paying 3.5-4.5 for EDM0 on 70K

April (EDJ0) 99.375/99.625 call spread vs Short April (E0J, EDM1) 99.50/99.75 call spread, paying 0.5 for EDJ0 on 50K

May (EDK0) 99.375/99.625 call spread vs Short May (E0K, EDM1) 99.625/99.875 call spread, paying 3 for EDK0 on 20K

EDM0 99.25/99.50 call spread, paying 9-9.5 on 65K

May (EDK0) 98.75/98.875/99.375/99.50 call condor, selling 90K at 7.5 (see note)

April (EDJ0) 98.875/99.00 call spreads, selling 100K at 11 (see note)

EDH0 99.125/99.25 call spread, paying 1.75-2 on 75K

EDM0 98.625/98.75 call spread vs selling 99.375/99.50/99.625/99.75 call condor, selling call spread from 9-8, 100K (see note)

EDM0 99.625 calls, paying 1.5-1.75 on 50K (see note)


Things to Watch in Interest Rate Futures

1) Wow! Crazy few days. It was tough to keep track of everything that went on. There were a lot of closing trades on Monday and Tuesday. Today, as things calmed down a bit, we saw a lot of curve trades focusing on the April/May/June expirations. There were about 150K curve steepeners done before the pit open. They consisted of buying the front call spread and selling the midcurve call spread. We have not seen many of these trades recently, but given the FOMC action, it does make sense. The question is the time frame. These trades seem to indicate that the Fed will move swiftly and error to the side of over accommodation.

2) Definitely seeing a lot of trades that are taking profits off the table and staying in the game. The May 87/88 call spreads were bought last week for 2.5 ticks. Selling that condor books a nice profit and leaves them with the 93/95 call spread for free. Same idea with the EDM0 package. Paper bought a lot of the 86/88 call spreads, most paying around 3.5 ticks. They get to sell that out and stay long the 93/95/96/97 call condor. The one straight up liquidation was the April call spreads. Paper paid 2.75 for that call spread LAST WEEK! Selling it out at 11 nets out a cool $20.6M profit. Not bad for a few days work!

3) Here’s a look at call slope. The EDM0 96 calls settled yesterday at 2.25. Today, paper was buying them at 1.75, with futures up 10.5 ticks at the time! This is an 18 delta call.

Source: Quikstrike

This graph shows the EDM0 vol curve based on delta over the last month. Incredible moves and replicated across most other Eurodollar option contracts as well. Volatility curves are flat, iron flies are well bid and the basic message is that we could go in either direction. Interesting times, to say the least!


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