June Eurodollar Skew Flattening

April 9, 2020 02:00 AM
Futures Options Trade Idea

Futures Options Trade Idea

The June Eurodollar options skew shift this week. With the 3-month Libor issues still very much on the radar it seems against the general market sentiment. 


The main impact of this skew move will be richening any Put structures that involved selling an out the money second leg, these were cheap last week. 

With this skew move the best trades (cheapest) to look at now will be ones that look at buying the out-the-money second leg(s). For example, look at the impact on the June 50 wide Iron Fly, at 3-year highs again.

Price has been pushed back towards recent high. The payout for being short between 99.19/99.56.

Other trades worth checking

Short EDM 99.375 Straddle vs EDM 99.00 Puts & 99.625 Calls (deeper puts here, 37.5 out puts vs 25 out calls), also if you don’t see downside risk, the Big Lizard is also cheap here. Short EDM 99.375 Straddle vs EDM 99.50 Calls. Also, check these types of trades on the May (K) expiry 37 days rather than 67 days to June expiry.

-EDM0^+EDM0 62.5 Wide Strangle
-EDM0^+EDM0 50 Wide Strangle
-EDM0^+EDM0 99.50 call
With strikes:
-EDM0 99.375^+ EDM0 99.625 Call + EDM 99.00 Put
-EDM0 99.375^+ EDM0 99.625 Call + EDM 99.125 Put
-EDM0 99.375^+EDM0 99.50 call

Trades booked for tracking

Just remember, these are trade ideas only and not investment advice. Do your own research and consider your risk tolerance. Know your risk.

Disclosure: We may have trading positions in the same or highly correlated trading structures. 



About the Author

George Austin is a co-founder of Pricing Monkey. Pricing Monkey provides financial derivative pricing and analytics software that helps improve understanding of complex derivative positions.