Oct 23. Lesson for the day: Deliverable futures contracts are subject to supplies of the underlying

–Ten year treasury yield rose 2.5 bps to 223.  Green and blue eurodollar packs both ended down 3 bps.  Premium was under pressure for most of the day in interest rates.  TYZ 127.5 straddle went from 145 at the open to 141 settle.
–News today includes Job Claims expected 285k.  Chgo Fed Nat’l Activity Index, generally ignored by the market but the last reading was -0.21, the first negative print since Q1, and the 3mo moving average printed +0.07, the lowest since Q1.  PMI expected 57.0 and Leading Indicators +0.6.
–The interesting trade of the day concerned June 2015 Bonds, USM.  The contract traded 1639 contracts and settled up over 10 points on the day as the CME changed the basket eligible for delivery into the contract.  From the CME: “After an extensive market assessment, CME Group is ready to announce which approach will be taken to address a five-year term-to-maturity gap in the delivery basket of U.S. Treasury Bond futures. (The gap was a result of the U.S. Treasury’s suspension of 30-year Treasury bond issuance between early 2001 – early 2006). ”
http://www.cmegroup.com/trading/interest-rates/us-tbond-futures-delivery-basket.html
“The first delivery month affected – the June 2015 delivery month — will be listed for trading on September 22, 2014, giving the marketplace ample time to make the necessary adjustments to trading systems.”
–I guarantee there are at least a few guys that didn’t feel as if they had “ample time” to make changes.  Initial trades were 5 lots each at 141-23, 141-30, 142-15 and 144-00.  The contract settled 151-15, and again, traded a total of 1639 contracts.  So the first 5 lot cost someone about $50k, and the old strategy of averaging up didn’t quite work out this time.
–Another interesting note regards the passing of Nelson Bunker Hunt, who tried to corner the silver market in 1979/80, driving the price up to $50/oz.  In early 1980 it collapsed to $10, wiping out much of the family fortune.  With all the money printing and economic ups and downs since then, today silver is at $17, having recently tested the corner high around $50 in 2011.
–Side note, gold silver ratio is making a new recent high around 72 currently.

Posted on October 23, 2014 at 5:50 am by alexmanzara · Permalink
In: Eurodollar Options

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