Whale Trader Betting Fed Fund Rate Under 1% In Next Six Months

Futures climb steadily throughout the day
Another quiet overnight session
Floor volume picking up as of late, 1 million+ contracts today
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: September 4, 2019


Without many catalysts, futures crept higher throughout the day’s session. EDU0 and back month futures continue to make contract highs.


Big Trades

EDH0 98.00/98.25 put spread vs 98.875/99.25 call spread, paying even for the call spread vs 98.51, 40K.

EDH0 99.25 calls, paying 4 vs 98.53-98.54 & outright, 50K (see note)

Short Dec (E0Z, EDZ0) 99.125/99.25/99.625/99.75 call condor, paying 2.5 on 30K

EDZ9 97.875/98.00/98.125 put tree, paying 1.75 on 25K (see note)


Things to Watch in Interest Rate Futures

#1 Over the past week, we’ve begun to see more action in the March 2020 related expirations (EDF0, EDG0, EDH0). What’s interesting is the heightened activity in the 99.25 calls. That’s an additional 75 bps from where we are today over the next six months. That’s pricing in a lot of cuts! Other than the extreme doomsayers on Twitter, I don’t get the feeling that we are headed for that big of a move. But then again, we will get two quarterly FOMC meetings and a tariff deadline by then.

#2 As I have stated, ad nauseam, the focus has been mostly on upside plays and a lack of regard for retracing our path in futures levels. That’s why it was refreshing to see the EDZ9 put tree trade. My first reaction would be to assume that it was taking advantage of futures levels to take off some risk. However, I believe this might be a new position. And when you have two Fed officials expressing differing opinions within hours of each other (Bullard: 50 bps cut would align Fed with market expectations, Rosengren: does not see much need for taking policy action), don’t be surprised if we start to see some value players snatching up some cheap downside.

#3 The CME Group announced today that SOFR options would begin trading on January 6, 2020. Probably not a bad idea to get acquainted with those spreads.

Source: Qukstrike

It will be interesting to see how this works out. As with any new product, it will be a non-issue until it achieves escape velocity. That’s what happens when enough real players get involved and help others feel comfortable with liquidity. And with the looming LIBOR phase-out, it could make for a timely product introduction.

About the Author

Albert Marquez works for Chicago Capital Markets (CCM) and covers Eurodollar & Treasury Options and Futures. Albert can be reached  on Twitter @STIR_Report or amarquez@ccmmarkets.com