Strange days and trades

October 5, 2020

–Nothing particularly exciting about the payroll report; Trump’s covid ordeal is the dominant news story.  On Friday the ten year yield rose 1.5 to 69.4 and thirties rose 2.3 to 1.48%.  Both are being auctioned this week, with the three year note kicking off tomorrow.  The curve steepened, with 5/30 ending at 119.7 bps, near the 123 double top.  This level was first seen in June, before slipping back down to 96 by late July, with another surge in late August, but the ensuing dip was only down to 110.  Third time’s a charm?  This morning USZ has pierced last week’s low of 175-08 and currently trades around that level.

–An interesting new trade was EDH2, EDM2 and EDU2 9975/9962p 1×2’s all being bought; buying the 9975p and selling 2x the 9962p.  The March’22 traded about 20k and EDM’22, EDU’22 both traded about 12k.  Settlements were 7.5/3.0 in H2, so 1.5, 10.25/5.0 in M2 or 0.25 and 13.25/7.25 in U2 or -1.25.  These trades helped crush red vol.  9975 straddles settled the previous Friday, 25-Sept at 19.0, 23.0 and 27.5 vs 9978, 9977.5 and 9976.5.  On Friday same straddles settled 17.0, 21.5 and 26.5.  This are extremely low levels with 1.5 to 2 years of time value.  A friend pointed out that EDU’21 9975/9962p 1×2 settled 3.0 and 1.25 or POSITIVE 0.5, as compared to the EDU’22 version which settled NEGATIVE 1.25 (thanks MO).  I.e. take the other side of the EDU22 trade and if nothing happens in a year it rolls in your favor, and you have a free look at long vol and deltas for possible downside.  There must be some sort of reason to enter these trades…maybe it’s a government program to transfer funds to struggling market making firms?  Just kidding, but it’s hard to see why these trades were done.

Posted on October 5, 2020 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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