April 14. Thoughts of Fed tightening fade as stocks tumble
–Though stocks continued their descent Friday, red, green and blue June euro$ contracts couldn’t push above strike for April expiration, with settles of 9947.5 in M5, 9847 in M6, and 9749 in M7. This will leave long xx.50 call holders even more aggravated when the strikes are hurdled over this week. Same thing happened at Easter in 2001. I was long April calls that expired worthless just prior to the holiday, and on the following Wednesday, April 18, the Fed made a surprise rate cut of 50 bps from 5.0 to 4.5% at 9:55 Chicago time.
–The life is being squeezed out of greens as hopes for concerted Fed tightening beginning in mid 2015 are fading. Trades that favored greens as the weakest and most volatile part of the curve are being unwound. For example, about a week ago Green Dec straddle was trading 2 bps higher than Blue Dec. As of Friday, 2EZ (green) 9787^ settled 64.5 and 3EZ (blue) 9712^ settled 66.5. So a complete flip…partially due to rally and curve compression but interesting nonetheless.
–Big trade Friday was buy of 100k 2EM 9825/9812/9787 put fly for 0.5. Roll up trade, with new long in 9825 strike. Another notable trade was buyer of about 15k USM 130p for 8-10. This was an exit trade; these puts had been sold around 1’05 to 1’07 a month ago.
–Retail Sales today expected +0.8 with +0.5.
