Futures Curve by Accutic

The cost of doing business off the floor.

Here is an example of the what avoiding the process of open outcry price discovery can mean. The trade shown in alert Awas from approx. 12:22 p.m.c.s.t. today. The trade involved selling 10K of the Sep. 120 calls (middle dial) at a price of 1'02, most of the risk associated with being long these calls was offset in the Sep. futures (left dial) at a price of 11626. This resulted in a volatility reading of 10.11% (right dial).Around this time on what is referred to a block trade, 10K of the Sep. 119 calls traded at a price of 1'28, alert B and pit sources indicate that futures were around 11626 at the time this trade occurred. Note the volatility reading associated with the price of 1'28, again right dial in alert B. Pit sources indicate that a fairer price for the Sep. 120 calls would have been 1'24 (alert C). The buyer therefore spent as much as $625,000.00 more than he would have had the order been placed in the pit where volatility was obviously trading much lower. To keep an eye on Volatility and how large trading flows impact it through out the trading day go to www.accutic.net and upload the alerts.

Treasury volatility annihilated this morning.

What you are looking at is 3 accutic alerts from earlier today. These alerts highlight the aggressive selling in treasury options resulting in a sharp decline in the volatility. All 3 of the alerts are showing selling of the July10yr. 113.5 puts "covered" against the Sep. 10yr. futures at a price of 11604 which was up 5 tics from yesterdays settlement, (the dial on the left. As you can see at approx. 8:23 this morning the July 113.5 puts traded at a price of 43, down 2 tics on the day delta hedged as noted resulting in a volatility reading of 12.92% up 31 basis points if you will from 12.61% based on previous days settlement level. About 3 minutes later the same player sold more of the 113.5 puts vs. the same futures level, however the market makers were only willing to buy option at a price of .39 down 6 tics from settlement. The volatility associated with this trade moved the dial sharply over 180 degrees counter clockwise to a reading of 12.33% down 29 basis points on the day and 60 basis points from where it was on the first trade.
The last alert on the bottom was from round 9:03 and you can see the further deterioration. This was not the only trade going on, there was also aggressive selling in other 10yr. options delta'd and outright as well as in 5yr. notes. To keep abreast of these and other dynamic flows, go to www.accutic.net and upload the alerts.

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September futures will be lead contract as of Friday 5/29.

Accutic alerts provide a quick means to monitor spread activity as the open interest flows from the current spot month to the deferred. Currently that involves the June (spot) contracts being offset and re-established in September. As you can see the open interest is still mainly in the June contracts, however by the end of tomorrow's session the September contracts will probably have more liquidity. Friday morning the September futures will be the lead contract month and all hedging activity will flow directly into those contracts. As can be seen spread ranges have been fairly narrow so far with no real trend developing overall. Some feel spreads should widen as funds are mainly short the June futures and thus will need to buy June and establish a short in Sep. We shall see. For those that looked at yesterdays play, long position was stopped out, however market may see some upside today. Call for more. To monitor these and other flows go to www.accutic.net and upload the alerts.

Short interest in 10yr. treasuries increases after June option expiration.

Due to the large amount of short interest in the 119.5 thru 122 puts, and with prices settling 11905.5 on Friday, a number of new shorts via auto exercise of in the money puts are in the market. So far prices have only rebounded moderately and no doubt a number of these shorts will hold on looking for further losses eventually rolling into Sep. I would suspect a fair amount of them would want to book profits and therefore buy back futures. 

The green shaded portion of the dial to the right shows all the in the money puts that were exercised friday. This data comes from Fridays preliminary open interest report and is available @ www.cmegroup.com.  The values at the 3:00 and 9:00 position on the dial are irrelevant for this discussion. The value at the 12:00 (top) position would be the at the money strike as of fridays settlement

No doubt traders were pushing prices as low as the could friday to squeeze short put holders and receive a profitable position. Had they been able to force the market to settle below 11900 there were over 100K positions in that strike.

Again we have chronicled the large premium sellers during the June option cycle, and now that the contracts have expired some short profit taking is quite possible.

Treasury Futures Calendar Spreads

Take a look at the dials. You can quickly see spreads have been narrowing over all as activity picking up. June options will be expiring tomorrow and as more activity rolls into July, August, and Sep. options traders will be putting more positions from the currently more liquid June Futures into September. Accutic alerts can help keep abreast of this activity. To download the alerts go to www.accutic.net

 

2yr. Calendar clocks are rendered in the alerts but omitted here for brevity's sake. To update the 2yr. calendar spread settled at a 16 tic differential after wednesdays session. Open interest in the June contract is 495,297 down 12.132. Open interest in Sep. is 71,180, up 32,532. Range of the spread has been 17.5 to 15.7.

Buying back short leg in 5yr. puts.

This trade from earlier today looked to be buying back the short leg of a July 114 - 115.5 put spread bought earlier this month some of it on the 11th, with futures around the same area. So it looks like this

strategy is no longer viable or needed. Accutic alerts again can be helpful in determining whether or not trades are new positions or unwinds. We don't always get it right but we try. It would be prudent to look at the open interest report from the exchange tomorrow to verify that the open interest did indeed decline on the trade.We will be checking.

Profit taking on Call structures drive 10yr. notes lower

To sharpen image simply click on it, to return to text click page back. As can be seen on the Bar chart on the bottom, as noted last week traders were buying cheap call structures looking for an up move after the quarterly refunding. The June 121.5 calls were definitely featured in a number of these strategies as our alerts were indicating. Today as the 121.5 calls were unwound futures prices came off between 8:00 a.m. and 9:00 a.m.c.s.t. and really have not recovered. The June options expire a week from tomorrow so traders were smart to sell them today. Notice how the volatility declined over the 25 minute period between these two alerts. For more go to www.accutic.net and upload the alerts.

Option Selling in 5yr. futures pushing Volatility lower.

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Like a pilot flying a jet aircraft over potentially hostile terrain precise instrumentation is critical to maintain altitude, airspeed etc. Trading with your money on the line is no less critical.  Accutic alerts are another tool in the traders arsenal to see how large institutional flows impact derivative valuations. Because of our deep liquid markets and open outcry trading floors, with these alerts you can stay on top of important information not available elsewhere. www.accutic.net.   Get in the cockpit and take us for a spin, you will not regret it.

Premium selling vs. the Sep. futures starting up

As Sep. options start to become more liquid we are seeing the premium sellers come in and start selling strangles. So far today they sold the 115.5 put and the 124.5 call @ 1.24 as noted in the diagram, they also sold some @ 1.20. There was also a seller of the September 116 - 124 strangles @ 1.33 today or just over $1,500 each. Typically this kind of player will get short 40, 50 or more thousands of these and look to collect handsomely. We have noted these trades in the past There was also good selling of July covered calls see 12:04 alert at www.accutic.net To see previous analysis on strangle selling http://financialfutures.typepad.com/kiss/2009/04/strangle-selling-in-us-treasury-10yr-options.html Any question on these or other strategies to take advantage of current market conditions given the quantitative ease environment, feel free to contact me @ www.accutic.net. 

Traders Taking Action on the Lond End of the Treasury Curve

To sharpen the image simply click on it, to return to the text click back page. If you look at the chart on the bottom you can see that the differential price between the 30yr. treasury futures and the 10yr. treasury futures has narrowed sharply since the beginning of the year. Today around mid session we sawsubstantial flows coming into the market buying the bonds and selling the 10yr. note on what is called a NOB trade. As the initial alert, upper set of dials above show around mid morning dealers were selling the 10's and buying bonds at a differential price of 14.5 ticks, which is 1 tick less than where the market had settled Monday. At the time of this trade bonds were being bought at 12120.5 which was down 3.5 ticks on the day, at the same time the 10's where being sold at 121'06 which was down 2.5 on the day, so the differential price netted out to down 1 on the session. Later on as bonds started to out perform 10's and another dealer bought bonds at 121'30 up 6 ticks on the day while selling 10's at 121'10 which was only up 1.5 ticks on the day. The clockwise movement on the spread dial shows the curve indeed started to flatten out as dealers were betting on, as the differential price widened to 19.5 tics on this trade. As of the close of the session the differential price was continuing to widen. To get accutic alerts and therefore be able to see these typed of dynamic flows go to www.accutic.net.