An exciting Sept expiration!
September 13, 2024
*********************
You start a conversation, you can’t even finish it
You’re talking a lot, but you’re not saying anything
When I have nothing to say, my lips are sealed
Say something once, why say it again?
Psycho Killer
Qu’est-ce que c’est? -Talking Heads
–Talking a lot but not saying anything. That’s the world we’re in. Post-Wednesday’s CPI the market became pretty darn certain that the Fed would only ease by 25. In yesterday’s note I posed the question, “Are you sure about that?” Yesterday the ECB cut 25, as expected. But, WSJ’s Nick Timiraos wrote a somewhat wordy article suggesting 50 as a possibility for Wednesday’s FOMC. October Fed Funds, which traded 9495 early (near the 25 bp cut price of 9492) rallied back to settle at 9499 and were 9500 bid shortly after settle. SFRU4 settled 9509.25 after posting a low of 9504.25, and this morning we’ve traded through the expiring 9512.5 strike! High as of this note is 9514. (Sept SOFR and midcurves expire today).
–Title of Nick Timiraos article: The Fed’s Rate-Cut Dilemma: Start Big or Small?
“That the Fed will cut rates at its meeting next week is all but settled, But how much is shaping up to be a close call.”
Last line, quoting former Fed vice chair Donald Kohn:
“We are at a point where you might say, ‘I could go either way- 25 or 50,’ but I think the risk management has shifted to the labor market and favors doing 50,” he said.
–It’s not all that frequent that the last couple of days before option expiration have this kind of juice. As of this morning’s prelims, SFRU4 had 1.35 million open positions, up 50k on the day. SFRU4 9512.5c had 382k, down 25k on the session. Adding to the day’s mix was a surge in gold to a new high. GCZ4 settled 2580.60 but was 2586 late and is currently just a buck shy of $2600. Looming over everything, but being ignored by most western media and ‘leadership’ is the threat of military escalation. From the Guardian: “Vladimir Putin sends direct threat to the UK over ‘act of war’ move against Russia”. Maybe it’s just me, but the Timiraos headline seems somewhat inconsequential by comparison.
–A couple of notable downside trades: +35k SFRZ5 9675/9600/9525p fly for 12.5. Settled 13 ref SFRZ5 9714.5.
Buyer of 47.5k 0QV4 9693.75/9675/9656.25/9637.5p condor for 5.0. This also has SFRZ5 as underlying, but expires 11-Oct.
https://x.com/AlexManzara/status/1834275418788053435
