Big Trades
Monday:
EDM0 99.625 straddle, selling 15K from 8-7.5
Tuesday:
EDM1 99.50/100.00 risk reversal, selling the call at 1 vs 99.75, 10K
Quick Takes
1. I’ve mentioned the lower volumes before, especially at the start of the week. But this week is some of the lowest volumes I can recall for Eurodollars.
Monday’s total volume was only 365K. That’s the lowest number that I can remember. In fact, the most intriguing thing about yesterday was that the 10-year options outpaced the Eurodollar options (429K). I don’t think I have ever seen that before.
2. One of the bigger trades over the last week has been selling the June 99.625 straddle. It began last week at 9 ticks down to 8 ticks. Monday saw the next leg down, from 8 ticks down to 7.5 ticks. Assuming an average of around 8 ticks, that gives you breakevens at 99.545 and 99.705. And with 3-month Libor fixings closing in around the 99.625 area (0.37663, which is 99.62337), seems like a decent bet. And with dreams of a NIRP future fading in the rearview mirror, may be the only game in town right now.
3. Speaking of negative interest rate policy (NIRP), the new anti-NIRP trade looks like the risky in EDM1 that traded on Tuesday. Selling the call for one tick in equidistant strikes doesn’t strike me as an alluring skew play. But if we’re talking about a position to benefit from no NIRP, then it makes a lot sense. Receive a tick and getting long a put. Plus, with so many of the 100.00 calls trading recently, this player could effectively be long some par calls somewhere else on the curve, this reducing their risk even more. Of course, as always, that’s a long way off, a lot could happen between now and then.