STIRs Volume Has the Holiday Weekend Blues

May 22, 2020 05:56 PM
Low volumes across the curve
Liquidations were this week's theme
Eurodollar futures continue to see tight ranges
Interest Rates Report

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Big Trades

 

Wednesday:

EDH1 99.625/99.75 put spread vs 99.875 call, paying 4 ticks for the call, 35K

Thursday:

EDH1 100.00/100.375/100.50 call fly, paying 3 vs 99.80, 13K

Friday:

EDM0 99.75/99.875 call spread, selling 80K at 0.50

Quick Takes

1. As I said earlier in the week, volumes are way down in Eurodollar options.

Eurodollar volume chart
Source QuikStrike

Other than half days around holidays, I can’t recall seeing such low numbers. As it stands, we are on track to have 4 out 5 trading days with about 400K contracts traded or less (Friday’s total stood at about 210K as of this writing). And for 5 days in a row under 1 million Eurodollar options contracts traded. Much of this has to do with where rates are and the Fed pouring cold water on the negative interest rate policy (NIRP) solution, but we must acknowledge the importance of the trading floor. I’m not suggesting that volumes would be exponentially higher if the pit was open, but I highly doubt we’d have 4 days of less than 400K and 5 days of less than 1 million.

2. Seems like we haven’t seen nearly as many NIRP trades like the EDH1 call fly on Thursday. At one point this month, open interest in the 100.00-100.50 calls across EDM0-EDM1 had increased some 200K in a little over a week. Now, that’s a distant memory. We've yet to see liquidations of those trades, but we certainly aren’t seeing any new positions being added.

3. Big liquidation today in EDM0. Last week, rates folk hero Credit Suisse's Zoltan Pozsar talking about Libor/OIS contracting to 10-20 bps by the end of June. This call spread was bid up to 1.25-1.5. Then after today’s Libor fixing, someone started liquidating. Did someone lose faith so quickly? We’ve definitely seen differing views in the market over the last few months. At one point we had JP Morgan advising the purchase of June puts while Zoltan was saying Libor/OIS would be tightening. Seems a bit early to liquidate, but perhaps this player thought the writing was on the wall and wanted to get what value they could out of the position.

 

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.