It’s a hi-tech world, but still all about oil

April 20, 2020

–The news today is about oil, where the expiring May WTI (CLK0) trades below $14/bbl, with June around 23 and July around 28.  The implosion of demand has sated storage facilities, where inventories will eventually be worked off.  It’s a stark reminder of lessened demand across industries, many of which will have to curtail output by shrinking, even after the re-opening.  The other dominant piece of news is that the government is close to passing another $400 billion in small business aid.  Stocks futures are modestly lower, treasuries have a small bid.  One of our market makers noted a jump in call skew in USM Friday, with 50 delta RR moving from around flat to 5 or 6 for call.

–Curve steepened on Friday with twos nearly unchanged (+0.3 bp) while tens rose 1.9 to 65.4.  Same general trend in dollars with reds -0.75, greens -1.375, blues -2.75 and golds -4.5.  

–The big trade in eurodollar options Friday was a buy of 75k EDH0 9975/9950/9925 put fly for 3.5.  Yet another trade which targets the 9950 strike.  EDM0 settled Friday at 9955.  The spread between FFQ0 and EDM0, a rough lib/ois proxy settled at 38.0, with more compression expected.  This curve is like oil….all the pressure in the front, which eases over time as we find places to store bad libor loans (in government “coffers” or shall we say, coffins).  It’s the same all over.  For example, EDM0/EDM1 calendar settled Friday at -17.5.  It has rallied from a recent low of -31 as pressure gradually eases on the front end of the curve, while back contracts have already priced a stagnant, low rate world consistent with sub $30/bbl oil.  In euribor June/June is -16.0 and in Sterling -13.0.  The one year calendars starting in M21, i.e. M21/M22 are +8.0 in dollars, +2.5 in bor and +5.0 in sterling. 

–AAPL downgraded by Goldman last week, as i-phone demand is expected to slide.  Closed slightly lower at 282.80 and this morning looks to open a couple of bucks lower, though not below Friday’s low of 276.86.  Chgo Fed National Activity today.  this usually hovers around zero and was +0.16 last.  Today expected to plunge to -3.0.  The low in GFC was -4.76.  

–It’s 420 somewhere…today is where the pot stocks shine.

Posted on April 20, 2020 at 5:47 am by alexmanzara · Permalink
In: Eurodollar Options

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