Dec. Eurodollar midcurve options expire on Dec. 11th of this year. They are options vs. the Dec. 2010 Eurodollar futures contract which settled at 9823 Friday. The dial in the illustration below is calibrated such that the nearest strike price to settlement (the 9825) is located at the 12:00 position. As noted below one player bought at least 40K of the EOZ (Dec. midcurve) 9800 – 9775 put spreads paying 6 tics. Volume in the Dec. midcurve put options dwarfed trading in all other Eurodollar options. Dec. midcurve calls only traded 3,700 contracts vs. over 170,000 on the puts. November midcurve options expire next month and the calls did have some decent activity and we show some details in the illustration below. Nov. midcurve options are vs. the Dec. 10 futures contract as well so the chart and dial reflect the underlying futures for both Nov. midcurve and Dec. midcurve.
Mar. 10 regular (vs. midcurve) expiration options which expire 3/15/10 were active and we plot the Mar. settlement price on the dial, (just past the 3:00 position) in order to highlight activity in the Mar. 10 - 9900 and 9850 puts. Normally I would not plot Mar data on a Dec. dial, but I believe a glance at the open interest will again make the clear point that trading activity was overwhelmingly in put structures.
In regard to the reverse repo operation currently being contemplated I think this quote sums up the situation very nicely. “So Bankers sold assets at non-market valuations to the Fed in exchange for cash, which became bank reserves....and now the Banks are going to use those same reserves to buy the Fed's assets (really, the assets the Banks sold to the Fed above market price), but with a promise that the Fed will buy them back at an increased price on a future date. This isn't far from the communist joke that "they pretend to pay us, and we pretend to work". If the goal is to crash the purchasing power of the dollar, I would bet it will work.”
http://www.econbrowser.com/archives/2009/09/federal_reserve_2.html scroll to this link about ½ way down where the discussion turns to understanding the current paradox of the money multiplier and all that rot.
Lastly the cover of Barron’s had a picture of Ben Bernanke and next to his face in fire engine red letters the cover says “ It’s time to raise rates, Ben” The rest of the captions reads “ The economy can now handle an increase in short-term interest rates to 2% from near zero. It’s the only way to prevent the dollar from collapsing and inflation from getting out of control. Give savers a break.
Putting this message in this manner on Barron’s certainly strikes me as a way for the Fed to get the market to start anticipating that rate rises are coming. That combined with flows not only in the US markets but very similar in the European fixed income markets in short term interest rate futures and options indicate that traction in that direction is gaining.
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Posted by: slelladag | 12/06/2011 at 02:02 AM