What’s your dirt doin’ in Boss Kean’s ditch?
April 16, 2020
–Retail Sales yesterday were dismal at -8.7% with Empire St Mfg -78.2. Philly Fed today expected -30 to -40, but if it’s anything like Empire, which easily took out the GFC low, then Philly could be -60 or lower. Jobless Claims again expected in the millions. The main feature yesterday was a massive bull flattener. The two year yield fell 2 bps to 20.1 as it nears the lower bound, while tens sank 11.5 bps to 63.5. The 2/10 spread thus closed 43.4 with good support 36/38 and a cap at 53/55. Red/gold euro$ pack spread closed 43.25, down just over 12 bps. The weakest contract of the day was EDZ20 which closed +1 at 99.66. Reds +3.125, greens +8.25, blues +12.625 and golds +15.25. EDM0 closed +4.5 at 99.565 in another sign of easing libor strains (3m libor set 1.135 yesterday). There was large buying of EDK 9950/9962 c 1×2 for 4.5 to 5.0 and an early seller of EDM0 9962/9975cs vs 9912/9887ps, paying 3 for ps.
–Implied vol firmed directionally with the rally in the long end, with TYM outperforming TYK vol. TYK/M 139 straddle spread closed 1’02 having been more like 0’61 early in the morning.
–While government support of the economy has been staggering, as we slowly move towards re-opening there will still be many companies with revenues nowhere near previous levels. It strikes me that some sectors of the stock market have rallied a bit too hard given the new realities. Last Sept, Nasdaq was around 8200, now 8400. SPX was 3000 now 2800 and Russell 1600, now 1200. Flows into big tech are overdone.
–3EH 99.375^ settled 53.5 vs EDH24 9939.5. Expires in 331 days. The 99.375p settled 25.75. The long dated EDM22 9962.5 straddle settled 55.5 vs 9965.5. Expires in 789 days. So the 9962.5 put settled 26.25. More than twice the amount of time left than 3EH put, but of course closer on the curve by 1.75 years. Should these two puts be the same price?
