May 24. Treasury option expiration. Happy Memorial Day weekend

–Not much net change in interest rates yesterday.  June treasury options expire today with ten years likely pegging the 131.5 strike, around the 2% yield.  Option open interest doesn’t lend much of a clue, with 132 thru 130.5 puts all having open positions of 45-50k.  Early close for the holiday…auto exercise determined by noon CST settlement price.
–Implied vol is firming.  For example, a couple of weeks ago the red midcurve Dec 9950 straddle was 16/16.5, yesterday there was a late buyer of 500 for 18.5, settled 19.0.  Also, red and green futures are seeing a bit more selling pressure relative to the back end of the curve in the past 24 hours.  Yesterday red pack -0.5 and green -0.75, but blues were unchanged. In fact, since last Friday, EDM14/EDM15 spread has moved from 26 to 30.5, up 4.5 bps, while EDM15/EDM16 has gone from 55 to 60, up 5.  Perhaps green midcurve puts are a bit cheap relative to blues?
–US economic news today, Durables expected +1.1 from -5.7 last.
–Japan continues to be volatile, though Nikkei was able to rally from the lows and turn positive.  If the foundation of Abenomics proves unstable in the next few months, then the global central bank embrace of QE could come under fire.
–There continues to be selling (at higher levels) of TYU 129/133 strangle.  Most of the juice is in 129p, 47s vs 133c 16s.  So strangle settled 63; I saw some sales at 61, there was a good size seller earlier in the week at 57.  Also a buyer yesterday of 10k FVU 116.5p for 0.5 to 1.  I calculate that strike to be about 120 bps away.

Posted on May 24, 2013 at 5:42 am by alexmanzara · Permalink
In: Eurodollar Options

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