100 bps here, 100 bps there. It all adds up
November 22, 2023
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–SOFR option activity continues to focus on an easing campaign starting next year. Existing Home sales at just 3.79m rate, lowest since 2010, bolsters the rate cut view. Heavy buying of SFRH4 9500/9525cs vs selling 9450p (about 40k). Settled 2.25 in cs vs 3.5 in the put ref 9475.5. SFRH4 9450p now has nearly 300k of open interest, the most of any March put. If one thought the Fed might have to hike further, the 9450p is a buy candidate. More SFRM4 9600/9700c spds bought, 6 paid 20k yesterday, settled 5.75 ref 9500, so exactly 100 bps away. Open interest in this call spread is huge, 309k and 270k. In SFRU4 another 100 higher 9700/9800cs 6 paid 20k, settled there.
–SFRZ3/Z4 one-year calendar settled exactly at -100 (9461.5/9561.5) down 3.75 on the day. Most inverted 1-yr remains H4/H5 at -115.5 (9475.5/9591.0).
–A BBG piece notes that the BOJ has refrained from buying any ETFs or J-REITS this year in a sign of more normalized policy. Of course, Nikkei 225 is +30% ytd. I was thinking a bit more about Binance and bitcoin. Changpeng Zhao was forced to step down and the company ordered to pay $4 billion in fines. I would have thought more selling pressure would occur on bitcoin (I don’t think authorities will accept BTC in fines), now 36600, down around 2%.
–As mentioned, Z3/Z4 calendar exactly at -100. In SOFR options 100 wide call spreads are popular. Last one: 0QU4 9625 straddle settled 100. (underlying is SFRU5 at 9624.5, expires 9/13/24). So breakeven 9525/9725. The 9725c, 100 out, settled 19.0 with 23d while the 9525p settled 13.5 with 20d.
–Jobless Claims today expected 225k. Durable Goods and UofM inflation expectations.
Happy Thanksgiving to all.
