If it LOOKS like a conspiracy…

January 12, 2023

–It’s almost like the plot of James Bond’s Casino Royale.  Hackers hatch a plan to ground the US airline fleet by corrupting NOTAMs (Notice to Air Missions).  This will, of course, cause a massive stock market sell-off, so the hacker group first buys puts on airline stocks and other sectors.  The plan goes as expected at first, and in a coincidence which should only accentuate profits to shorts, news leaks that the President had Classified documents at private residences.  Treasury immediately takes action to avert panic and otherwise thwart the evil plot.  News outlets are told that it’s a simple computer glitch.  The Plunge Protection Team is unleashed with an added twist of planting hints that CPI will show deflation.  (BBG article this morning: Traders lose trust in CPI security in wake of volume shock).  SPX closes on the high.  Le Chiffre, having been financially crushed, take a hit of his inhaler.

–The big data point today is, of course, CPI expected m/m at -0.1% with Core +0.3%.  YOY expected 6.5 from 7.1 last with Core 5.7 from 6.0.  A lot of large trades yesterday, including a block sale of 45k SFRZ3 at 9561.5 (settled 9565.5; appears new as OI +57k).  Buyer of 100k SFRZ3 9800/9850cs 1.5 (settled 1.0; also new).  Buyer of at least 30k SFRF3 9512.5/9518.75/9525c fly for 1.75 to 2.0; settle 2.0 ref 9511.5 and expires Friday.  Buyer on block SFRG3 9518.75/9543.75 c 4×5 using prices 4.5 and 1.0 (settled 3.5 and 0.5; new).  24.9k x 31.2k.  Option plays in rates mostly benefit from a gentler Fed.  The large and tight Jan SOFR call fly looks for a modest rally to 9518, while Citi recommended buying a Jan SOFR strangle for a big move one way or the other today.  I think they cited 9500/9512.5 strangle, but with SFRH3 having settled 9511.5, I will just note that SFRF3 9506.25p settled 2.5 and the 9518.75c (mid-strike of the fly) settled 1.0. Breakeven on that strangle is 9502.75 and 9522.25.  I am not a buyer.
–On the SOFR curve, new lows in near one-year calendars.  U3/U4 settled at a cycle low -162.5 and H3/H4 at -104.  Even a spread like H3 to Z3 is indicating more than 50 bps of ease over latter half of the year (settled -54; 9511.5 and 9565.5).  The rally in stocks is making Powell’s job harder, but no matter what, SFR contracts later this year are convinced the Fed will cave and ease.  SFRZ3 9562.5 straddle has been under heavy selling pressure; settled at a new low of 80.5 vs 9565.5.  EURCHF broke out to a new high.  Risk on.  By the way, Alcoa (AA) also showing signs of a breakout, holding above 50, due to hat demand. 

Traders Lose Trust in CPI Data Security in Wake of Volume Shock

Posted on January 12, 2023 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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