SELL PREMIUM! ENHANCE INCOME

April 29, 2020

–Q1 GDP expected -4 to -5%.  FOMC announcement and press conference today.  Some expect a tweak higher in IOER as the Fed Eff is now setting at just 4 bps, but I would suspect they leave unch’d.  After a year or more of the market thinking that pegging terminal libor was easy and being consistently wrong, once again eurodollar strip pricing says that 3 month libor will be 25 to 35 bps for the next two years.  Every eurodollar contract from EDM’20 to EDM’22 is between 99.64 and 99.73.  And that my friends, is what is known as “forward guidance”. As noted, straddles have been pounded.  For example, EDM1 9975 straddle is 19.5 bps.  With over 2 weeks to go, the midcurve red May 9975 straddle settled at just 4.5 bps vs EDM21 9973.0.  Seems incredibly cheap in front of FOMC, etc.  Until you look at a chart and realize that since April 20 the range in the contract has been 9971 to 9974…oh, and we squeezed a break-out new high this morning at 9974.5.  Might as well jump on the bandwagon: FREE MONEY.  SELL THE SHORT MAY STRADDLE AT 4!  (for the compliance people, that’s a joke, not a recommendation). 

–Reuters reports that Boeing is readying a huge multi-billion bond sale to the Federal Reserve, oops, I mean to the MARKET.  There’s a lot of bonds out there.  But Powell will likely assure us this afternoon they can be easily absorbed.  

–Ten year yield fell 4.6 bps yesterday to 60.8.  Exit sales yesterday of 40k EDM0 9937.5 put at 1.0.  EDM0 9962.5 straddle settled 11.0.  The 9962/9950/9937 put fly settled 1.75.   

Posted on April 29, 2020 at 6:18 am by alexmanzara · Permalink
In: Eurodollar Options

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