Heavy selling in EDZ1
August 20, 2021
–Yesterday featured a couple of large trades, a sale of some 300k EDZ1 down to 9979 (settled 80) and a sale of 50k TY3Q 134.25/134.50 call spread from 8 to 5 (5s). This latter call spread expires today, and was an adjustment of long 134/134.5 call spreads, leaving the position as long 134/134.25cs which settled 14/64 vs 134-105. In all likelihood it just settles at full value above 134-08, but in some ways there are incentives to buy 134.5 calls expiring today. The EDZ1 sale caused an increase that contract’s open interest of 131k contracts to 1.15 million, the most of any ED. Volume was 687k, about equal to the sum of the next 3 most heavily traded contracts. Early in the morning pressure on Z1 came in the form of a seller of 35k Z1/H2 spreads at -3.5. The spread settled -4.0; the low of the year on settle has been -4.5 on March 22. I believe it is turn-of-year related and that dollar funding for foreign entities may tighten in spite of the Fed’s Standing Repo facility. In any case, the first 4 ED contracts as a pack closed negative on the day (-1.0625bp) while every other pack was positive in a flatter curve (golds, 5th year, +3.25). There was also buying of 20k EDH2 100 calls for 1 vs 9986.5, settled 0.75 vs 9984. Connect the dots…Only Fans is banning the sale of explicit material on its site, which means a collapse of economic activity…therefore negative rates. Duh.
–They’re not really linking the Afghanistan situation to weakness in US equities, but the Hang Seng is providing an example of government impact as the index was above 31000 in February and is now sub 25k. Of course that could never happen here, but just as a whimsical exercise, note that a 20% haircut from this month’s ath in SPX of 4480 would be just under 3600, right around levels from November of last year. August option expiry in stocks today.
–New low in 5/30 just above 111 bps, down 2.5 on the day as bonds shrug off inflation concerns and project decelerating growth. Jackson Hole next week, but the idea of taper has been well-telegraphed and is more of a net negative for stocks than bonds.
It’s a hot august…
