Oct 26. Stocks at new lows as Nov treasury options expire

–AMZN and GOOGL earnings reports disappointed yesterday afternoon. with the former falling 8% after the report and Bezos rescinding the recently announced $15/hour wage.  Just kidding about the last part, but this is where we see whether the ‘wealth effect’ begins to run in reverse.  Stocks are at new lows for the move, though well above the VIX inspired blow-up in February.  Fed officials, like Mester yesterday, are inclined to separate the health of the economy from the ups and downs of equities, but an 8% drop in AMZN is still a quick $65 billion which has vanished.  In any case, today brings Q3 GDP, expected to post an initial gain of 3.3%.

–Rates were little changed yesterday with the ED strip down one from front June, EDM19, through the blues.  Implied vol tumbled, with early (new) sales of TYZ 117.5p setting the pace.  Open interest in this strike rose by 59k; settled 10 vs 118-17, and took the Dec 118.5 straddle from 1’05 to a settlement of 1’00.  New lows in stocks this morning corresponds to new highs in treasuries, with the expiring November 119 calls in tens threatening the strike.  these calls settled at 1 yesterday with open interest of 134k; they had been bought heavily early in the week from 2 to 4.  Auctions ended yesterday with the seven year, it’s end of the month, these calls could easily finish in the money.

Posted on October 26, 2018 at 5:07 am by alexmanzara · Permalink
In: Eurodollar Options

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