Dec 7. EDZ5 drama

–The payroll data Friday cemented the prospect for a rate hike next week, and prompted buying of about 50k EDZ5 9950p for 0.5.  That trade has worked out this morning as EDZ5 trades -1.0 at 9949.0, with a week to go before expiration.  I skimmed several stories this morning on dollar funding problems for EM, and an additional reminder that GC is trading above Libor, so collateralized loans (GC repo) are trading above an unsecured lending rate.  Not new, but another factor which may be putting some pressure on EDZ.  Add in some uncertainty due to previous libor rigging and it gets interesting.  EDZ futures have about 1m contracts outstanding, 9950 calls 571k and 9950 puts 463k.
–There are also a few articles about pressures in the corporate bond market, referencing the parabolic rise in CCC rates (while US stocks continue to levitate).  The problem has expanded outside the energy sector, but with crude down another 50 cents this morning to new lows below 39.50, additional pressure will be seen in exploration and producers.  One might think that implied vol in the euro$ curve would see some spillover, but straddles were crushed by 1.5 to 2.0 bps on Friday.
–Today’s news includes a Bullard speech at 11:30 ET and Consumer Credit at 2:00.  The last Consumer Credit number was quite strong  at $28.9B with a surge in the revolving credit growth rate of 8.7%.

Posted on December 7, 2015 at 5:10 am by alexmanzara · Permalink
In: Eurodollar Options

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