Big Overnight Interest Rate Flows Bled Into Day Session As Traders Digested COVID-19 Risks

Huge overnight session with over 900K contracts traded prior to the pit open
Eurodollar Futures and volatility way up
Massive day volume, almost 4M contracts traded
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: February 24, 2020

Big overnight flows bled into the day session as traders digested more news about the COVID-19 spread outside of China. No real economic numbers kept the focus on upside, for the most part.

Big Trades

May (EDK0) 98.75/98.875 call spread, paying 2.5 on 50K

EDZ0 99.50/100.00 call spread, selling one leg at 2.5

EDZ0 98.125/98.25/98.375 put fly, paying 2-2.5 on 150K (see note)

EDZ0 99.375/99.625/99.75/100.00 call condor, selling 125K at 2.5-2.25 (see note)

EDU0 99.375/99.625/99.75/100.00 call condor, selling 100K at 1.5 (see note)

EDM0 99.25/99.50 call spread, paying 1.25 on 55K


 

Things to Watch in Interest Rate Futures

1) Wow! Straight up, all day. The spread of the virus outside of China has traders spooked. I’m guessing the numbers out of South Korea were the most jarring, and justifiably so. The threat to global growth is real and people are starting to price that in. According to Bloomberg’s World Interest rate Probability (WIRP), June is a done deal

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Source: Bloomberg

 

2) Huge trade in EDZ0 put fly. There was a time when that was the main focus of the market. Everyone was pinning the 98.25 strike. But times have changed. The FRA/OIS spread has narrowed so much that many were shifting their focus to the 98.375 strike. Then we add in the virus situation and now all bets are off. Last week was all about buying EDM0 calls (see above chart). Which makes this trade even more of a head-scratcher. Does this player think everything will blow over by December? That’s a long way out to pin a strike, much less a December expiration which is notoriously susceptible to year-end funding shenanigans.

3) Huge trade in EDU0/EDZ0 call condors. These are actually closing out positions. Paper had originally bought these last year when both contracts were Red contracts. The started buying the individual condors around 2.5-3 back in June. Then they started buying the condor stupid, paying 6.5. A final add had them buying 9.5’s in the stupid in early September. The amazing part is that futures were around these levels! EDU0 was trading around 98.755 and EDZ0 was 98.77. The EDU0 87 straddle was trading around 59.25, while the EDZ0 was around 64.15. Current straddle markets are 37.75 and 46.25, respectively. In addition, these condors are short the area of the call skew that has exploded the most. Overall, not great.

 

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.