In this post I take a look at the Canadian BA Options market. The atm strike has been offered down vs the wings over the last few months. Payout profiles that go against that flow are starting to look attractive. Although BA midcurve & red options have been trading recently most of the option volume is in the front four contracts. With no hint of a rate move on the horizon and with central bank rates cut to 0.25, the main game has been selling the at the money 99.50 strike . What buying flows there are more spread with most of the open interest in upside strikes. This has led to a smiley v ..read more

Silver options were a wild ride in 2020, and implied vol continues to remain high. In this post we discuss how best to wager on lower volatility for the year ahead. Here is a current run of Comex silver straddles: The volatility term structure is very flat, the forward vol implied by straddle spreads is still up in the mid 40s: We think vol is likely to drift lower. Here’s a chart of implied volatility (3month expiry) going back 5 years, the long term average is close to 20%: However there is plenty of short term uncertainty around the price of silver. One way to play for a normalisation of ..read more

Vol may be low but we still see opportunities in Eurodollar Vol. Below we look at buying mid green straddles vs selling long green straddles which offers around 10.5 annual-bp-vol of vol roll down over 9 months while being long gamma. These are the eurodollar atm straddles at time of writing, looking at September expiries across the fronts/reds and longs and also the 1y, 2y and 3y mid curves: the z-scores tell us what we all know, vol is at extremely low compared to recent history. Notice that the vol term structure is upward sloping, and yet, mid-curve vol is relatively flat to the ..read more

With the initial shock to the markets seemingly over, and Fed policy set to “easy” to stimulate a recovery, rates markets have been subdued making it harder to see where the next opportunity is. Below we take a look at what’s now priced into options on 10y Treasury futures, focussing on the premium for the US election and find it to be on the expensive side. Implied vols in TY’s have been grinding lower in a way that is reminiscent of EUR a few years ago where the market continually, but gently, found new lows as a result of persistently low realised in a low rate regime. All the while the two ..read more

In this post I take a look at the Canadian BA Options market. The atm strike has been offered down vs the wings over the last few months. Payout profiles that go against that flow are starting to look attractive. Although BA midcurve & red options have been trading recently most of the option volume is in the front four contracts. With no hint of a rate move on the horizon and with central bank rates cut to 0.25, the main game has been selling the at the money 99.50 strike . What buying flows there are more spread with most of the open interest in upside strikes. This has led to a smiley v ..read more

Silver options were a wild ride in 2020, and implied vol continues to remain high. In this post we discuss how best to wager on lower volatility for the year ahead. Here is a current run of Comex silver straddles: The volatility term structure is very flat, the forward vol implied by straddle spreads is still up in the mid 40s: We think vol is likely to drift lower. Here’s a chart of implied volatility (3month expiry) going back 5 years, the long term average is close to 20%: However there is plenty of short term uncertainty around the price of silver. One way to play for a normalisation of ..read more

Vol may be low but we still see opportunities in Eurodollar Vol. Below we look at buying mid green straddles vs selling long green straddles which offers around 11 annual-bp-vol of vol roll down over 9 months while being long gamma. These are the eurodollar atm straddles at time of writing, looking at September expiries across the fronts/reds and longs and also the 1,2 and 3yr mid curves: the z-scores tell us what we all know, vol is at extremely low compared to recent history. Notice that the vol term structure is upward sloping, and yet, mid-curve vol is relatively flat to the&nbs ..read more

With the initial shock to the markets seemingly over, and Fed policy set to “easy” to stimulate a recovery, rates markets have been subdued making it harder to see where the next opportunity is. Below we take a look at what’s now priced into options on 10y Treasury futures, focussing on the premium for the US election and find it to be on the expensive side. Implied vols in TY’s have been grinding lower in a way that is reminiscent of EUR a few years ago where the market continually, but gently, found new lows as a result of persistently low realised in a low rate regime. All the while the two ..read more

Garnering a “Check The Facts” link on social media almost seem to be a badge of honour these days but here the facts support this fake-news headline. Behold the strips in USD, EUR and GBP: USD EUR GBP Jun20 99.698 100.335 99.785 Sep20 99.715 100.375 99.820 Dec20 99.695 100.390 99.815 Mar21 99.770 100.405 99.860 Jun21 99.790 100.415 99.870 Sep21 99.780 100.415 99.865 Dec21 99.750 100.410 99.850 Mar22 99.755 100.405 99.845 The spread between the 1st and 9th contracts are 2.25bps, 6bps and 4.5bps respectively. This is what the surface of planet ZIRP looks like in rates term ..read more

As the political dialogue switches away from managing the crisis to what-was-done-when and who-said-what-to-who, we take a look at the recent pop in the mids in 99.625 / 99.75 / 99.875 call flies in Eurodollars. Let’s start with a run: Jun21 was lifted at 5 last week in decent size – that’s a payout ratio of 2.5 : 1 assuming you pin it exactly in just over a year’s time, and Libor has to be within 0.175% and 0.325% to cover the initial premium. Is that rich though? Plotting the price of the same fly on the 5th contract and looking back to the time the last time the Fed was on hold you get the ..read more