ED Futures and Options Market Recap: March 20, 2020
It appears as though the interest rate market has reached a point of exhaustion. Much quieter the last few days with in-the-money call liquidations a continuing theme. Big ranges are still being seen in most contracts, mainly taking cues from equities, virus updates and now oil news.
EDZ0 99.50/99.75 call spread, selling 100K at 16.
EDM0 99.625/99.875 call spread vs Short June (E0M, EDM1) 99.75/99.875 call spread, selling EDM0 at 4.5, 50K
April (EDJ0) 99.00/99.25 call spread 1x2, paying even for the 1 leg, 65K
April (EDJ0) 99.50/99.625 call spread 1x2, paying 3.5 for the 1 leg, 30K
May (EDK0) 99.75 calls, paying 2.25 on 60K
EDK0 98.50/99.00 put spread, paying 5 vs 99.34 on 100K
May (EDK0) 99.00/99.125/99.375 put fly, paying 5 on 25K
Things to Watch in Interest Rate Futures
1. This was the first week without the pit and it has been a rough adjustment. Markets started off very wide. On Monday, the EDM0 99.625 call, which was At-The-Money (ATM) at the time, was 2.5 ticks wide. This is equivalent to a 5-tick wide ATM straddle. In the pit, this straddle would be one tick wide, with opportunities to trade in the middle. Some markets improved over the course of the week, but remained wider than a normal pit market. As for basic functioning, getting markets electronically worked fine, but not having the noise of the pit to signal important actions was sorely missed. In addition, just having access to other locals and brokers is a very important part of the trading ecosystem. On any given day I could have three different conversations with three different market participants and get three different perspectives on the market. This was a sentiment echoed by many locals I spoke with. In the end, there has been a lot of rumors about the reopening of the trading pit. I have heard anything between 2-8 weeks and possibly never reopening. All speculation at this point.
2. Calls were the theme early in the week. A lot of liquidations of existing positions and some new positions added. Based on where rates are now, expect a lot focus on the 99.50 to 100.00 calls going forward. What will be really interesting is to see if we start to get more activity in the strikes beyond the par calls. There doesn’t seem to be a lot of belief in negative rates thus far, but we are in uncharted waters now and that could change any day!
3. Another theme we saw this week was the buying of EDM0 related puts and put structures. Traders were looking for protection and profit due to further funding fears. And that proved to be an interesting trade as Thursday EDM0 had a 25 tick range! That’s a lot for the front contract and we haven’t seen that since 2008! I would doubt it’s over yet.