AI unprofitable. Who knew?
August 21, 2025
*****************
–Several large upside bias trades yesterday in rates. Early buyer TYV5 113c covered 111-26, 23 paid 60k (prem > $16m). Settled 23 ref 111-28 in TYZ5. Delta is 28, open interest in that call strike is highest of any TY call, now at 243k, up 84k on the day (bought heavily Tuesday as well). Ten year yield ended at -0.5 bp at 4.295%. TYU5 options expire Friday so this trade might be partial replacement of long TYU 112.5 calls.
Late buyer 10k USV 119c for 16. Settled 14 ref USZ 114-00.
SFRH6 9725c 6.0 to 6.5 paid for 60k (used futures for synthetic prices from 9646 to 47.5). Settled 6.25 vs 9644.0. SOFR straddles firmed by 1 -1.5 bps as a result of this trade. SFRH6 9643.75^ settled +1.5 at 46.25.
SFRZ5 9618.75/9631.25/9650/9662.5c condor 3.0 to 3.25 paid for 50k. This trade targets three 25 bp eases by year end. Max value at expiry is 12.5 between middle two strikes 9631.25 to 9650. Current EFFR is 4.33% or 9567. Cuts totaling 75 bps would be 3.58% or 9642. Lower call spread settled 4.5 and upper at 1.75 for 2.75s.
–Headlines regarding FOMC minutes were slightly hawkish (BBG: Majority of FOMC saw inflation as greater risk) but that was prior to NFP report. Powell tomorrow.
–All sorts of press stories about an AI bubble. MIT released a study saying 95% of companies see zero return on AI investement. (WSJ) META is instituting a hiring freeze for AI.
–Today’s news includes Jobless Claims, S&P PMIs, Existing Home Sales.
