A Really Big Day for Eurodollar Options

Volumes pick up as week progresses
Volatility remains low across the curve
Interest Rate futures move higher, but ranges stay tight
Interest Rates Report

Interest Rates Report

A couple of slower days to start the week, followed by a big volume day today. Over 2.5 million contracts in Eurodollar options traded. And it wasn’t all focused on the EDM0 contract. We seen some large trades across many expirations, which is a very welcome development. Futures moved higher, while daily ranges remained narrow. Most contracts seeing 3-4 tick ranges over the course of the trading session.

Big Trades

Monday:

Blue Sep (E3U, EDU3) 98.75/99.00 put spread, paying 1.5 on 25K

EDZ0 99.625/99.75/99.875 call tree, paying 4 on 35K

10 Yr June (TYM0) 137.5/140.5 strangle, paying ’28-’29 on 11K

Tuesday:

EDM0 99.375 put vs 99.625/99.75 call spread, paying 3.75 vs 99.63 on 50K

Wednesday:

Short July (E0N, EDU1) 99.75/99.875 call spread, paying 3.5 vs 99.75 on 20K

EDH1 99.375/99.50/99.625 put fly, paying 1 on 60K

EDU0 99.375/99.50/99.625 put fly, paying 1-1.25 on 90K

EDM0 99.50/99.625 put spread, paying 2-2.25 on 55K

Big Trades

Thursday:

EDM0 99.125/99.375 put spread 1x2, paying 1.25 on 10K

EDM0 99.00/99.125 put 2x1, paying 0.25 on 50K

Friday:

EDU0 99.50/99.626 put 1x2, selling 2 legs for 0.75-0.50, 25K

EDM0 99.625/99.75 call spread, paying 4.25 on 18K

EDH1 99.25/99.50/99.75 put fly, paying 4.5 vs 99.69 on 11K

Quick Takes

1. We have definitely seen a change in sentiment in the EDM0 contract recently. Over the previous month or so we had seen plenty of strike pinning targeting the 99.25/99.375 strikes. In fact, some packages were selling the 99.625 calls to finance. Recently, we’ve seen differing perspectives on where this contract was headed. Credit Suisse and FinTwit cult hero Zoltan Pozser saw FRA/OIS approaching 25 bps by the end of May, suggesting a reason to be long calls. Meanwhile, JP Morgan suggested selling the EDM0 contract as funding issues were to continue. THE JPM resulted in more positioning than Zoltan’s piece, as evidenced by the aforementioned strike pinning. However, it may be CS that gets the last laugh as the focus has now become the 99.50-99.625 strikes in EDM0. Guess we’ll have to wait and see which pins get knocked down by the market bowling ball!

2. Speaking of pinning, the biggest trade of the week so far has been the EDU0 put fly. I’m not convinced that it’s an expression of rates and policy as much as a cheap downside play. Of course, with EDM0 now focusing on the 99.50-99.625 strikes, this may be someone taking advantage of the recent move in futures and getting ahead of the crowd.

3. The EDH1 is very similar to a trade we saw earlier this month. The 99.25/99.50/99.75 put fly was bought about 60,000 times for a price of 3.5. Similar idea today, but tighter and cheaper. Regardless, that’s 240K options short at the 99.50 strike. Not sure what these players are seeing, but that’s a long way out. However, I am glad to see some trading in contracts other than EDM0.

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.