OTM treasury puts popular
April 9, 2024
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–Once again new highs in near SOFR spreads. On March 27, SFRM4/M5 settled -111. Yesterday -88 (9481.5/9569.5), so that’s 23 bps in 7 sessions, mostly due to the drop of 30 bps in SFRM5 from 9599.5 to 69.5. The front M4/M5 spread is still the most inverted, but there’s less variation, for example, SFRM5/M6 is -38.5 or just 49.5 higher than the front; on March 27 it was -40. The adjustment in price has been in reds forward. My personal view is that the upward shift in Fed dots in 2025 and 2026 at the last FOMC was more important than the market gives credit for; higher rates a couple of years into the future affect cash flows on everything. (Perhaps clues in tomorrow’s FOMC minutes)
–The other theme yesterday was new buying in treasury puts:
FVM4 106p covered bought 40k; settled 41 vs 106-01, OI +32k, straddle settled 1’20
Others were otm buys:
FVM4 102.5p 1.5 to 2 paid 50k, 2 settle, OI +46k
FVM4 102.75p 2.5 paid 10k, 2.5 settle, OI +9.6k
FVM4 103.0p 3.0 paid 10k, 3 settle OI +8k
TYM4 104p, 3.0 paid 10k, 3 settle, OI +9.7k
TYM4 103p 2.0 paid 20k, 2 settled OI +20k
CPI tomorrow along with the 10yr auction. Three-year auction today, 30s on Thursday. These put buys are longer dated and wingier, they’re not just short term protection. They’re for Jamie Dimon big risks type stuff.
It’s a hardball world, son. We’ve gotta try to keep our heads until this peace craze blows over.
–Full Metal Jacket
