100 calls
Sept 28, 2021
–December 100 calls. You’re probably thinking, no, it was EDM2 100 calls that trade 1 yesterday, not December. I’m not talking euro$’s, but rather WTI. CLZ1 100 calls have about 18k in open interest and settled 15 cents yesterday. This morning Nov WTI is at a new high, up 95 cents to 76.40, as the press becomes more comfortable in referring to the current energy crunch as a CRISIS. In terms of inflationary impact, CNBC blares this headline: ‘Fed Chair Powell to warn Congress that inflation pressures could last longer than expected.’ That’s a bit of a stretch from the Chairman’s comments to be delivered to Congress today, which are posted on the Fed’s website. Here’s the relevant excerpt: “Inflation is elevated and will likely remain so in coming months before moderating. As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer lasting than anticipated, but they will abate…”
–Yields rose yesterday and are up again this morning as 1) tapering is expected, 2) oil jitters feed inflationary expectations and 3) the debt ceiling circus moves to center stage. Tens up 2.4 bps to 1.482%. Seven year auction today. On the eurodollar curve, once again all near one-year calendars posted new highs. Worth mention is EDZ1/EDZ2 which was hanging around 25 bps before the FOMC, and settled 34 yesterday. More than one hike by the end of next year is starting to seep into pricing. The peak 1-yr calendar remains EDU2/EDU3 which settled at a new high of 71.5 yesterday, up 0.5 on the day.
–Back to EDZ’22: it settled 9947.5, down 0.5 on the day. There was a large 0EZ 9962/9950p 1×2 bought for 1.5 covered 9949, 25 delta (sold futures). It’s a vol crush, though further back on the curve vol remained better bid. Settles on the 1×2 were 16.0 and 7.5. The top strike showed a gain of 38k in open interest, the lower strike added 30k, so it appears as though long 9950 calls were turned into a vanilla 1:1 put spread. There does not, as yet, appear to be a scramble for otm puts in the interest rate complex. Which is to say, there’s still a chance to buy now…
–Powell’s term ends early next year, and has yet to be re-nominated by Biden. Fed Presidents Rosengren and Kaplan both resigned yesterday due to the appearance of impropriety related to personal trades. I saw a report, unconfirmed, that Bostic owns shares in banking stocks. The composition of the Fed may be much different next year.
