Feb 6. Forced hand

–War’s over man, Wormer dropped the big one.

–What?! Over? Did you sayover‘? Nothing is over until we decide it is! – Bluto

–Welcome to your first day as Fed Chair Mr Powell.  I’ve often said that markets test a new Fed chief, but Yellen slipped through with impeccable timing.  A lot of people had already been making comparisons to 1987, and that particular crash was just two months after Greenspan had been installed.  At that time, the Fed issued this statement:  “The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”

–I don’t know how many times I’ve read that the market had gone without a 3% correction in so long.  Well now it happened and there’s utter astonishment.  Why?  The real problems are now entwined with the idea of “volatility as an asset class”.  It’s easy when stable with a downward bias across products.  Not so easy now.

–Interest rate futures rallied.  The ten year yield fell nearly 9 bps by the 2pm floor close to 276.4, and more afterward.  There was a buyer during the day of some 50k FVH 115c early for 4/64’s.  These settled at 10.5 vs 114-25.25 (nice), but later in the day were 22/24 vs 115-05.  Wow.  On 29-Jan, a week ago Friday, someone paid $0.49 for 50k March VIX 25c.  I saw a price on these of 6.20.

–There were some amazing moves, and now there is likely to be a LOT of rebalancing and forced exits.  Several of the short VIX etns will likely not survive.  However, treasury vol remained subdued overall.  Late quote in the TYH atm straddle was 1’03/1’04 vs 121-29, only around 4.9.  (TYH 121.25^ settled 0′;63 v 121-08.5).  Similarly, the market is NOT really repricing the idea of a March hike by the Fed.  It’s still there; the bar is pretty high.  However, the path of forward hikes is now questionable, with near ED calendar spreads shedding recent gains.  For example, EDZ8/Z9 was 36 early yesterday and ended the day at 29 (33.0s).

–Not much more to say except this.  Trump owned the stock market rally, taking credit whenever possible for the rise in ‘wealth’.  His lawyer’s are advising (BEGGING) him not to submit to an interview with Mueller.  Will it now all devolve into political blamesmanship?  

Posted on February 6, 2018 at 5:14 am by alexmanzara · Permalink
In: Eurodollar Options

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