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Eurodollar/Treasury Option Roundup, Put Buyers Fade Monday FI Rally

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Despite the rebound in FI futures Monday, listed option trade continued to favor downside/rate hike insurance buying via puts across the curve. Underlying driver: the Federal Reserve likely needs to move monetary policy to a restrictive stance to contain inflation, Cleveland Fed President Loretta Mester told MNI Monday, warning that the Fed's estimate of the nominal longer run fed funds rate of 2% to 3% might still leave policy too accommodative.

  • Highlight trade in SOFR options: Total 11,000 SFRQ2 97.25/97.43/97.50/97.62 2x2x1x1 put condors, for net level 1.0/belly over at 1156:00ET. Same structure Blocked early Friday 6.3k from 0.75-1.0 as acct loads up on downside/rate hike insurance. SFRU2 futures currently trading 97.665 (+0.010)
  • Limited downside put fly buying in Eurodollar options included 10,000 Jun 96.25/96.50/97.00 broken put flys, 3.5 vs. 97.40/0.10%, and 5,000 short Jun 96.25/96.50/96.75 2x3x1 put flys, 1.0.
  • Less policy related and more tied to this Friday's June expiration: paper bought +30,000 TYM 117.5/118 put spds vs. wk4 TY 117/117.5 put spds, 2 net db/midcurve over - basically a one week option spread where June expires Friday rolling down strikes to midcurve options that expire thge following Friday.
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Despite the rebound in FI futures Monday, listed option trade continued to favor downside/rate hike insurance buying via puts across the curve. Underlying driver: the Federal Reserve likely needs to move monetary policy to a restrictive stance to contain inflation, Cleveland Fed President Loretta Mester told MNI Monday, warning that the Fed's estimate of the nominal longer run fed funds rate of 2% to 3% might still leave policy too accommodative.

  • Highlight trade in SOFR options: Total 11,000 SFRQ2 97.25/97.43/97.50/97.62 2x2x1x1 put condors, for net level 1.0/belly over at 1156:00ET. Same structure Blocked early Friday 6.3k from 0.75-1.0 as acct loads up on downside/rate hike insurance. SFRU2 futures currently trading 97.665 (+0.010)
  • Limited downside put fly buying in Eurodollar options included 10,000 Jun 96.25/96.50/97.00 broken put flys, 3.5 vs. 97.40/0.10%, and 5,000 short Jun 96.25/96.50/96.75 2x3x1 put flys, 1.0.
  • Less policy related and more tied to this Friday's June expiration: paper bought +30,000 TYM 117.5/118 put spds vs. wk4 TY 117/117.5 put spds, 2 net db/midcurve over - basically a one week option spread where June expires Friday rolling down strikes to midcurve options that expire thge following Friday.