Traders Take Profits On Long Calls, Second Day Of Interest Rate Call Selling

Huge overnight session with over 700K+ contracts traded before the pit open
Eurodollar Futures and volatility higher across the board
Huge volume again as the total approached 3.5M contracts traded
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: February 25, 2020

Futures put in their session lows early in the overnight session and trended higher all morning. After equities opened, futures took their clues from equities and continued to move higher throughout the session, closing at or near their highs.

Big Trades

May (EDK0) 98.25/98.375 put spread, paying 1.25-1.5 on 100K

Short June (E0M, EDM1) 99.125/99.25/99.375 call tree, selling 2 legs at 1

EDZ0 98.125/98.25/98.375 put fly, paying 2 on 40K (see note)

EDU0 99.00 calls, selling 10K at 8.5

EDZ0 99.00 calls vs May (EDK0) 98.75/98.875 call spread, selling EDZ0 at 11, 40K

EDM0 98.125/98.25/98.375 put fly, paying 1.5 on 20K

EDU0 98.75 calls, selling 50K at 20 (see note)


 

Things to Watch in Interest Rate Futures

1) Another big move up. From the first Red (EDH1) back, we saw contract highs reached today. And EDZ0 was half a tick away. And with that, we’ve seen a lot of profit-taking and downside hedges being established. As for the locals, this has been a welcome development as they have been able to get a lot of short calls back. In fact, the trading pit seemed the loudest when the EDU0 98.75 calls were being sold. At this point, economic data is on the back burner and all the market focus is on containment or continued spread, of the COVID-19 and what that means for the global economy.

2) Yesterday I noted the buying in the EDZ0 81/82/83 put fly. Today they bought another 40K, bringing the total to around 200K. In addition, today they also started buying the EDM0 put fly, paying 1.5 on 20K. It seems an odd trade given the backdrop. The only reason I can come up with is that it’s simply a hedge against a move back down. This player probably made a lot of money on the way up and realizes they need something cheap to hedge a retracement. It’s like throwing the dealer a $100 chip when you're up big at the casino…from what I understand.

3) The second day of call selling. Looks like some players are taking advantage of the move in futures and volatility to close some very profitable positions. Today we had EDU0 98.75 and 99.00 calls. Paper was buying the 99.00 calls early in the new year, paying 3. They bought the 98.875 calls for size as well. Don’t be surprised to see those come off if we move a bit closer to that strike. Also, there was selling of the EDZ0 99.00 calls. An interesting observation from yesterday is that the total call volume was 3,147,710 and the net change in open interest was -968. So it looks like paper is taking off positions and giving them back to locals. And they were more than happy to oblige! I’m not sure if this is signal that we are at the top, but when you have a position in the hundreds of thousands of contracts, and futures are at or near their contract highs, seems like a good place to start lightening the load.

 

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.