STIRs Hold Firm

Eurodollar option volume much improved, 2 million+ contracts traded
Volatility mixed in Eurodollars, while U.S.Treasuries were mostly higher
Eurodollar futures in relatively tight range, with most contracts trading in 4 tick ranges
Interest Rates Report

Interest Rates Report

The market saw improved volumes across the curve as the markets digested a variety of economic indicators. Most metrics were worse than expected. This  caused equities to move lower and short-term interest rates to hold firm throughout the day’s session.

Big Trades

EDU0 99.375/99.625 options put spread vs 99.75/100.00 options call spread, paying 1.75 for the put spread, 20K

EDU0 99.25/99.50 put spread, paying 3 on 20K

May (EDK0) 99.625/99.75 call spread (2x) vs EDM0 99.125/99.25 put stupid, paying 1.5 vs 99.56 for call spreads, 45K.

May (EDK0) 99.25 puts, paying 0.75, outright and covered vs 99.57, 75K.

Quick Takes

1. Is LIBOR expected to be elevated well into the third quarter? These September trades paint that picture. The put spread vs the call spread could be someone emboldened by the performance of the EDM0 97/100 call spread. That spread was bought more than 350,000 times at 0.5-1.5 before the you-know-what hit the fan. It’s currently 0.5-1.25. So rolls negative, why not sell it to finance some downside? As for the 92/95 put spread, this is an add. These were bought earlier this month, paying 3.25 on 10K.

2. The May/June package was a big trade, but the more curious part was the execution. This package traded 1.5 on a block, then traded 1.25 on the screen. The assumption here is that the seller was able to quickly turn around and lock in 0.25 tick on a portion of the position. This is the second day in a row that this has happened, as we saw the same thing occur in the Green June trade yesterday (5.5 on block, 5s on the screen). Is this a result of the buyer being impatient or is it harder the ascertain values under current circumstances? Perhaps a combination of both, but I’m guessing the buyer is hoping the pit returns in the future!

3. More LIBOR action, player buying the May puts looking for continued funding pressure. Although relatively cheap, looks expensive when you consider the whole vol curve. The 92 puts have about a 6 delta.

Source QuikStrike

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 stirreport@gmail.com.