Late February, 2020 saw a lot of 'unbelievable' trades go in through with real size in the Eurodollar options market. Didn't make sense then, but eventually they did.
On February 27, someone bought the ED June20 Call Spread (99.75/100) with around 345K volume. The only scenario it made sense in was if the ED rate went very very close to 0.
EDM0 closed at a mere 98.75 on the day! Target FF at the time was 1.5% (lower limit), so it takes something to bet that it will go to 0.
Some other notable big size trades were:
May (EDK0) 99.25/99.50/99.75 call fly, paying 2 on 40K
Short Dec (E0Z) 100.00 calls, paying 2.5 on 80K
EDH0 99.00/99.25 call spread paying 1 on 30K
EDM0 99.75/100.00 call spread, paying 1.5 on 25K
Take this retrospective on the biggest ED trades that week
https://www.futuresmag.com/2020/02/28/interest-rate-focus-continues-call-structures-and-risk-heading-weekendFast forward to 16 March, 2020
So the day Fed cut interest rates to 0, this trade settled at 2.25.
Recent NIRP action
The above trades point towards one thing: it is a mistake to ignore real size Eurodollar option trades, no matter how ridiculous they seem at the time.
We are in mid May now and the market seems to be hell bent on imposing a negative interest rate policy on the Fed. This kind of action doesn't fore well on the possibility of a quick economic recovery.
Lets see if there is any clawback from these positions in the upcoming days, but tis certainly an area which commands due attention.
Komentar