Nov 11. Another October 15 day possible going into year-end? YES

–New high in $/yen this morning over 116.00 as Abe might delay implementation of a sales tax increase.  Early yesterday it was trading 114.30 and the dollar appeared to have finally run out of steam.  However, dollar strength has reasserted itself, with the euro now pressing near 124.  Crude oil was up $1 yesterday morning, but plunged over $2.50 from the early high, closing at 77.40 and is slightly lower again this morning.  A huge move.  EUR/CHF is knocking at 1.20, apparently ready to test the SNB’s resolve to hold the floor.  US stocks are at new highs.
–The point is that there is still heightened volatility across markets, and October 15 might not have been an anomaly.   There was a WSJ article the other day about the plunge in yields that day, noting that some automated trading systems are simply switched off in particularly volatile periods.  From the article, “Regulators and other experts are examining deep-seated shifts in trading since the financial crisis, which could help explain the unusual size of the move in a market many investors rely on for its relative stability.”  The fact that regulators are delving into the day’s trade must make many algo shops that much more inclined to reduce risk (and liquidity) on wild days, as the cost of possible regulatory ‘fixes’ has to be weighed against potential profit.
–In US rates yesterday, trade pattern was similar, though less dramatic than oil.  Ten year futures added to Friday’s gains early in the morning, and then slid lower through the session.  Both 5’s and tens tacked on about 5 bps in yield,  with the latter at 2.37/2.365 (w/i) going into tomorrow’s auction.  Green Dec euro$ (EDZ6) range from Friday’s employment low to yesterday’s high was 19 bps, 9806.5 to 9825.5.  In EDZ7 it was 20.5 bps from 9736.5 to 9757.0.  Volume was light yesterday, with some attributing the sell-off to sparse flows and today’s holiday.  Well, we are now in the seasonal period of somewhat lessened liquidity.  There are 24 trading days between now and the Dec 12 settlement of Dec midcurves.  The Green Dec straddle settled 21.5 and Blue Dec at 22.0.  The idea is to own and scalp gamma.  There are plenty of catalysts that can get the ball rolling in either direction…
–I will be in for the early part of the day, and we can source market makers to tighten screen markets.

Posted on November 11, 2014 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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