Risk Management?
September 19, 2024
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–Regarding my comment yesterday “Post-election comes with heaps of uncertainty and the Fed addresses uncertainty with liquidity” a friend responds with, “I know. I am taking extra time at the gun range.” INSURANCE. You buy it before you need it. Not when the hurricane hits.
–Powell says the economy is in a good place, but my thought is that he’s worried about the trajectory. And, I can’t help but feel as if Powell’s 50 bp cut had just a twinge of F-you to Trump. Of course, there was only one dissenter, Bowman. The chair also tried to tamp down on the pace of forward easing, saying, “…nothing in the SEP that suggests the committee is in a rush.” By now the dots and projections have pretty much been discredited, on the other hand the Fed’s recent focus on inflation seems to have paid off…for now.
–On Tuesday, SFRZ4 settled 9596.5 and the 9600^ for Dec was 34 bps. After yesterday’s FOMC, the futures settle was 9599 and the straddle was just 28.5. (Probably a bit on the low side given the environment). The news is known, so the air came out of premium. I was going to emphasize this point by noting the huge drop in FFV4 open interest as shorts threw in the towel and longs were happy to book an extra 0.5 to 1.0 bp in “premium” as the contract traded 9517.5/18 vs the new target of 4.83. However, the prelim bulletin shows open interest having INCREASED by 9k. My comment there is BULLSH-T. Bad data. But then I thought, did someone really, really big say, ‘look, the mideast is about to explode, and NATO seems intent on provoking WW3 by using long-range missiles in Russia, and the next attempt on Trump is probably right around the corner, and Diddy is going to commit “suicide” in jail. Why not squeeze the shorts and pay another bp for the possibility of an emergency ease?’ Just my own musings…probably crazy. Right?
–But in a related development, late in the day buyers of Oct TY calls that expire tomorrow: ref 115-025, 116.5 and 116.75 calls expiring Friday were bought for c-7 25k and 15k. Also a buyer of TYZ4 105.5p 2 paid for 35k. All of these are new trades. A few lotto tickets for “Crazy”.
–I marked a few levels just in front of the FOMC, then just after, then settles then late (nr electronic close)
FFV4 9506.5 9518 9517.5s 9517.5
SFRZ4 9591.5 9502 9599.0s 9598.0
SFRH5 9651.5 9666 9659.0s 9657.5
TYZ4 115-025 115-16 115-025s 114-290
ESZ4 5699 5755 5680.0s 5688
GCZ4 was up $32 at one point post-FOMC but was 2584, down 8.4 late in the day.
–There’s a lot more that could be said, but it probably will take a little more time for volatility to settle down. Curve steepened with a slight new high in 2/10 to +8 bps. SFRZ4 is back above 9600 this morning, 40 bps lower in yield than the Fed’s 4.4 yr-end dot projection. Think about that for a second before selling the straddle at 28. But then go ahead and sell it anyway. It’s fun managing short gamma with this backdrop.
