Interest Rate Option In-The-Money Call Liquidations A Continuing Theme

March 10, 2020 03:00 PM
Eurodollar Option muted volumes compared to previous weeks
Eurodollar futures and volatility lower across the curve
Big skew moves over the last week
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: March 10, 2020

It appears as though the interest rate market has reached a point of exhaustion. Much quieter the last few days with in-the-money call liquidations a continuing theme. Big ranges are still being seen in most contracts, mainly taking cues from equities, virus updates and now oil news.

Big Trades


Green June (E2M, EDM2) 99.375/99.50/99.625/99.75 call condor, paying 3.5 on 50K


EDM0 99.25/99.50/99.75 call fly, selling 20K at 9

EDZ0 100.00 calls, paying 1 on 10K

EDM0 99.25/99.50 call spread vs Short June (E0M, EDM1) 99.50/99.75 call spread, selling the EDM0, 15K at 10 (see note)


Things to Watch in Interest Rate Futures

1) An odd couple of days here. I woke up Monday expecting massive movements and activity, but the total volume for the day was only about 2.2M. I say “only” because we’ve been seeing 3-4 million on the low side recently. And the activity we did see wasn’t very exciting. Other than the call condor in Green June, it seemed as if it was mostly in-the-money call selling and teeny put buying. Take a look at EDM0, for example:

Source: Quikstrike

The blue bars to the left of the at-the-money line represent ITM calls being closed out, while the yellow bars represent puts being bought.

2) Another interesting observation is the movement in put skew. Here’s a look at the front expirations over the last week:

Source: Quikstrike

The dotted lines represent the flat skew we talked about last week. The best explanation I can think of is that we aggressively moved futures up to the 99.50 strike and once we got there, volatility got hit hard. As the ATM volatility gets hit, the put skew must rise, and by quite a bit, in order to give those teeny puts some value.

3) Taking some quick profits in the June/Short June trade. Bought these last week, paying 4.5 for the June call spread. Very well-timed and excellent strike selection! We rallied up to the 95 strike in both contracts, so the EDM0 is fully in the money and the E0M is sitting at the lower strike. The futures spread went from -8.0 to 2.0:

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