July 27. Blood moon prophecy

–The blood moon prophecy came a little early for Facebook following Wednesday’s earnings call which wiped out $130 billion in capital.  “And I beheld when he had opened the sixth seal, and, lo, there was a great earthquake; and the sun became black as sackcloth of hair, and the moon became as blood.”  Longest blood moon in history today. “A total lunar eclipse happens when the whole moon enters Earth’s shadow.  Some sunlight still reaches the moon, but it first goes through Earth’s atmosphere [which] filters out most of the sun’s blue light, so the moon looks red.”  Might as well also mention that Mars will be the closest to earth in the past 15 years.  So that’s a lot of red…though FB is still where it was in December.

–GDP data today expected +4.2 for Q1 though the Atlanta Fed GDP Now forecast was shaved from 4.5 to 3.8 after yesterday’s Durables and Trade reports.
–Rates rose yesterday with tens +3.9 bps to 297.5, but that’s from futures close to futures close, the rise from late Wednesday was just under 1 bp.  New highs in near eurodollar calendar spreads, with the peak one-year spread, EDU8/EDU9 closing at 58.5, nearing the constant maturity high of the year at 62 bps.  The 1st/5th/9th butterfly did post a new high close of 53, just higher than the 2008 peak.  EDZ8/Z9 closed +2 to a new recent high of 39.  It’s worth recalling that these two contracts, EDZ8 and EDZ9 have the most open interest on the curve at over 1.8 million each as the Dec/Dec spread was heavily traded in Q1.  EDU8, H9, and M9 all have approx 1.3 million open.
–In connection with back ED calendar spreads. there is still an extraordinary amount of long dated ratio put spreads trading, with the total encompassing at least a million short puts.  As an example from yesterday, 15k EDZ0 9637/9587 put 2×7 sold at flat premium, (CME sheets report an add of 84k in lower strike). So as an example, there are 130k shorts in EDM20 9600p (settled 3.0 ref 9705.5) and now 250k shorts in EDZ0 9587p which settled 4.5 vs 9692.5.   There are 872 days until expiration of EDZ20, so that’s linear decay of 5/1000’s of a  tick, about $0.13 on one lot. Many of these rato trades have small call deltas, lending marginal support tothe green pack.
–On front end of the curve there was buying of EDZ8 9750/9762c 1×2 for 0.25.  Settled 0.0 ref EDZ8 9733.0.  Roll-up trade in case the Fed hikes Sept and stops.  July/Oct FF spread settled 23.75, so the Sept hike is substantially priced.
–Interesting article on ZeroHedge cites Moody’s which says its Loan Covenant Quality Index has hit a record low. The article is mostly about the decline in credit quality of leveraged loans, a growing part of the debt market,
Posted on July 27, 2018 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply