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Eurodollar/SOFR/Tsy Option Roundup: Devils Advocate

US TSYS
Devil's advocate plays the range. While Tuesday's option trade hedged for/anticipated correctly for a rebound in underlying rate futures, Wednesday's trade centered on the opposite. With a few exceptions, midweek flow faded the strong rally in underlying futures via put buying.
  • Debatable drivers for the rally in rates that kicked off overnight deemed risk-off as stocks traded weaker/paring Tue's gains on the back of sharply lower crude oil prices (WTI fell to 101.67 low vs. 109.71 high as demand eased and markets anticipated a zero gas-tax for 3M proposal from Pres Biden).
  • Rates held near highs in second half after Fed Chair Powell's Senate testimony initially deemed less hawkish for rates with the goal to bring inflation back down to our 2%. Unwilling to take chance of 100bp hike off the table, followed by Chicago Fed Evans calling 75bp hike in July "very reasonable", helped keep futures in check as buy interest moderated.
  • Trade highlights included block buys of 20k each: Dec 95.62/96.00/96.12/96.50 put condors, 8.0 and Dec 95.62/96.12/96.25/96.75 put condors, 14.0. SOFR options included buy of 6,500 SFRV2 95.75/95.93/96.06/96.25 put condors and -5,000 97.25/97.62 call spds 0.5 over SFRZ2 96.12/96.25/96.50 broken put flys vs. 96.50/0.14%.
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Devil's advocate plays the range. While Tuesday's option trade hedged for/anticipated correctly for a rebound in underlying rate futures, Wednesday's trade centered on the opposite. With a few exceptions, midweek flow faded the strong rally in underlying futures via put buying.
  • Debatable drivers for the rally in rates that kicked off overnight deemed risk-off as stocks traded weaker/paring Tue's gains on the back of sharply lower crude oil prices (WTI fell to 101.67 low vs. 109.71 high as demand eased and markets anticipated a zero gas-tax for 3M proposal from Pres Biden).
  • Rates held near highs in second half after Fed Chair Powell's Senate testimony initially deemed less hawkish for rates with the goal to bring inflation back down to our 2%. Unwilling to take chance of 100bp hike off the table, followed by Chicago Fed Evans calling 75bp hike in July "very reasonable", helped keep futures in check as buy interest moderated.
  • Trade highlights included block buys of 20k each: Dec 95.62/96.00/96.12/96.50 put condors, 8.0 and Dec 95.62/96.12/96.25/96.75 put condors, 14.0. SOFR options included buy of 6,500 SFRV2 95.75/95.93/96.06/96.25 put condors and -5,000 97.25/97.62 call spds 0.5 over SFRZ2 96.12/96.25/96.50 broken put flys vs. 96.50/0.14%.