July 25. Copper surge; implied treasury vol edges up

–Last week it was noted that Merrill’s MOVE index of treasury volatility had hit an all time low; yesterday in an otherwise uneventful day premium selling appeared to have been shut off and some buyers emerged. Most notably, there was a new buyer of 20k USU 155c for 1’01 to 1’03 as futures traded around 154-13 to 15. Open interest doubled in the strike to 27.6k. The early quote in the 155 straddle was 2’32/2’34 (6.8 ref 154-17); with the call buying it popped up to 2’40/2’43 and USU 154 straddle settled 2’40 or 7.2. There was also a large amount of wing buys: TYU 130.75 and 131calls 1 paid in each for total 20k. On the put side a total of 80k FVU 114.75 and 115 puts for 0.5 each. Late in the session there was a buyer of 1k red pack atm straddle strips for 171.5. The point is, that there was finally premium buying. The second somewhat odd note is that bonds slid even as the call buying was taking place; it seems as if the call buys must have been a hedge against much larger selling pressure elsewhere. Typically large delta option trades can push the bond future pretty easily, but in this case USU settled down 17/32’s and is continuing a slide this morning. (Ten year cash yield +2.0 yesterday to 225.2 and 30y bond +2.9 bps to 283.2).

–Copper is simply exploding higher this morning and is within shouting distance of the infrastructure inspired highs of February. Not sure of the reasons for this, but again, China seems to have relaxed some of the more stringent monetary reforms… maybe that has taken a weight off copper and perhaps we’re even seeing some treasury selling by China. Oil is also adding to yesterday’s bounce, currently +50 cents at 46.85 (CLU7). Nasdaq closed at a new record high.

–Yesterday we looked at 2EU 9800/9775/9750 put fly which traded small at 3 during the day. Settled 2.75 ref 9811 in EDU9. Not a bad short in front of tomorrow’s FOMC. Language on inflation not expected to change much “running somewhat below 2%”… market measures little changed.

 

Posted on July 25, 2017 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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