May 12. Commodity washout continues

–Once again commodities plunged with silver down over $3 and crude oil down over $5 to 98.90 (late in day). Renewed volatility after last week’s gyrations is forcing a change in perceptions; moves like this might become more likely and risk reduction is the new reality, in some cases forced through margin changes. Structural problems are not being solved, just papered over until they flare up again, like Greek riots. Yesterday it was reported the government was scaling back plans for AIG share sales as the stock slid from 50 to 30 this year, and this morning I saw that the idea might be shelved for now. GM, another gov’t sponsored project, has gone from a high of about 39 to current level around 31. Things are fine globally as long as the backstop of gov’t (and central bank) largesse is there, but there is the potential for unravelling when support is withdrawn. Sort of raises the stakes for the end of QE2. Even the stock market is reflecting nervousness. (Cisco’s continued warnings don’t help).
–Curve was a bit flatter yesterday. There was a large seller of EOU and EOZ 9925/9937c spreads vs buying E2U and E2Z 9800/9812c spreads, about 40-50k, representing a bet toward further flattening with a grinding move upside.

Posted on May 12, 2011 at 10:21 am by alexmanzara · Permalink
In: Eurodollar Options

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