April 26. Tails LOOK fat because atm is so skinny

–It’s hard to find something of interest to comment on regarding yesterday’s action.  Yields declined and stocks soared as the unwind from last week’s French election continues and Trump’s tax proposals come into clearer focus.  Of course, in the Trump world, the announcements seem to mark the high points and implementation is much thornier.  The classic ‘buy the rumor’ environment.  The ten year yield rose 5 bps to 232.7.  July Fed Funds settled at a new low of 9892.5, representing over 70% odds for a hike in June as we also await next week’s FOMC.  Draghi tomorrow with possible hints of accommodation withdrawal.  Five year auction today.

–Implied vol continues to soften across markets.  TYM atm straddle was 1’52 Friday and traded as low as 1’19 yesterday (TYM 125^ settled 1’22).  A friend noted this article (thanks AOK) http://mrzepczynski.blogspot.com/2017/04/fat-tails-everywhere-even-if-volatility.html?m=1

with the headline Fat Tails Everywhere Even if Volatility is Low.  Not sure if we put trades yesterday in the category of fat tails, but there was a buyer of 20k TYM 132c for 1/64 yesterday, and 25k USM 136p for 1 as well.  June VIX 22 calls were bought for 40 cents yesterday.  VIX calls in June seem remarkably cheap, though of course VIX itself continues to sag, nearing single digit territory (closed 10.59). We’ve reached a permanently low plateau in vol?

Posted on April 26, 2017 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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