I’m going off the rails on a crazy train – Ozzy

March 19, 2020

–Stocks puked after Ackman got on CNBC with a long alarmist interview.  I later read that Gundlach covered the last of his stock shorts yesterday.  Thanks Bill.  Decent bounce into the close.   ESM low yesterday 2262.00 but settled 143.75 higher than that at 2405.75.

–One program after another being rolled out to save the system.  Latest Fed scheme is a money market lending facility.  Stocks haven’t responded as much as I thought they might, but yesterday the curve steepened aggressively, as the two year yield rose 6 bps to 52 bps and thirties rose over 24 bps to 1.875.  Tens gained 23.4 bps to 1.246%.  New recent highs in both 2/10 at 72.4 and 5/30 at 107 bps.   Vols exploded late in the day.  I marked USM0 at 28 vol with the 168 straddle at 15’56 vs 167-31.  This is also apparent in back midcurve straddles.  Example, 3EZ 9900 straddle settled 67.0 vs 9894.5 in EDZ23, while 2EZ 9912^ settled 54.5 vs 9912.0 in EDZ22.  12.5 is a wide straddle spread given both expire on the same day.  Another comparison: 3EM 9900^ settled 47.0 vs 9904.  2EZ 9912^ (same as mentioned above) settled 54.5 with six months more time.  Back futures calendars have widened, but I would almost have to look at selling 3EM to buy 2EZ for 7.5.  THIS IS NOT A RECOMMENDATION…JUST CRAZY PRICING.

–The dollar is taking no prisoners.  New lows in India rupee, Korea won, Aussie, etc.  Crude oil was crushed yesterday with CLK0 low at 20.52.  There has been a $3 rebound this morning.  

–EDM0 has made a new low of 9941 this morning though is slightly off that level now.  The US will do everything to save banks, but the global system is much more precarious as displayed in FX across the globe.  Consider these settles: EDM0 9946, EDU0 9956, EDZ0 9951.5, EDH1 9954.  Now here are the 9900 puts:  June 6.0, Sept 3.75, Dec 4.25, March 4.75.  According to settles: -4x June and +3x Sept and +3x Dec for flat.  THIS IS DEFINITELY NOT A RECOMMENDATION.  The pricing everywhere shows that when there’s a crunch, it happens all in the front… whether it’s funding, VIX, oil, etc.  EDM0 is simply a reflection of that.   

Posted on March 19, 2020 at 5:04 am by alexmanzara · Permalink
In: Eurodollar Options

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