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Eurodollar/Treasury Option Roundup

US TSYS

Option trade was decidedly bullish for underlying rate futures Monday, consistent buying of low delta calls, unwinding or outright selling puts/put spreads as futures surged.

  • The rally saw chances of 75bp hikes start to evaporate after probability of a 75bp hike in May climbed near 75% last week (before Cleveland Fed President Mester pushed back over the need to hike more than 50bp late Friday).
  • Market putting more weight on the demand hit rather than the inflationary pressure from further supply side disruptions on widespread Covid lockdowns prospects in China (panic selling: Shanghai CSI 300 -4.15% to 3851.80, Hang Seng -3.86% to 19809.0).
  • Salient Eurodollar option trade included multiple buyers of Sep. Dec and Mar expiry calls, call spds including late Block buy 25,000 short May 96.56/96.75 1x2 call spds, 0.0.
  • Treasury option focus on 5Y options paper buying 6,700 FVM 113.5 calls, 30 -- total volume over 71k tied to 113.5/114 call spds
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