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3/10-3/17: A Week to be Remembered
- Andrew Moore
- Mar 19, 2023
- 2 min read
Front 3-Month SOFR Futures on Monday 3/13/23 ~4:05 PM ET
Since the Silicon Valley Bank news broke Friday 3/10/23 and its sudden landing in Federal Receivership, At-The-Money 3-Month SOFR front (SFMR3-SFRH4) and red straddles (SFRM3-SFRH5) have been experiencing daily ~22-30% volatility swings. Monday 3/13/23 saw an 8+ Standard deviation move in the front 4 quarterly futures. ATM unhedged option liquidity that market makers are willing to show for quotes mirrors the extremely thin futures markets. Liquidity for ATM unhedged or high delta option packages has been ranging between 50-500 options. However, hedged or low delta option packages can often have quoted sizes between 5,000-50,000 depending on the option structure.
While current price depth for quotes may seem like it would be difficult to target large sizes for single price orders, quoted size is often misleading. Large option plays trading and cleared options volume this week prove liquidity is still very strong for 3-Month SOFR options. Packages with low to no natural delta or that are delta hedged have tremendous liquidity. Last week's (3/13/23-3/17/23) average daily volume for 3-Month SOFR options ended Friday's close at 4.56 million with a 1.3x put/call ratio. This ADV for SOFR options reflects high banking, proprietary, and institutional demand for this product and speaks to its success in serving as a proper interest rate hedge for Federal Reserve, public & private market interest rate exposure.
Large Option Plays 3/10/23-3/17/23:
Friday 3/10/23:
1. SFRH3 95.00/94.9375 put spread cvd 94.96 80d paper was sold 100K @ 3.5 in one clip (ref SFRH3 @ 94.955)
2. SFRJ3 94.375/94.25/94.125 put fly +.75 / 90K (ref SFRM3 @ 94.62)
Monday 3/13/23:
1. SFRU3 94.375/94.125 put spread ppr sold 40K from 3.5 down to 3.25 (ref SFRU3 @ 95.775)
2. SFRZ3 97.50/98.50/99.50 call fly ppr sold 60K from 6 down to 5.5
3. SFRZ3 95.50/95.75 call spread cvd 10d ppr pd 9.5 on 30K
Tuesday 3/14/23:
1. SFRJ3 94.875 put cvd 95.19 30d ppr pd 12 on 50K
2. SFRJ3 95.25/94.875 put spread cvd 95.62 15d ppr pd 11-12.5 on 70K
3. SFRK3 94.6875 put cvd 95.19 25d ppr pd 13 on 25K
4. SFRM3 94.75/94.875/95.00 call fly ppr sold 40K @ .5 (ref SFRM3 @ 95.28)
5. SFRZ3 94.125/94.00 put spread ppr sold 50K @ 2 (ref SFRZ3 @ 95.53)
Wednesday: 3/15/23:
1. SFRJ3 94.75 put traded 82K: a. cvd 95.25 26d traded 13-14 / 72K b. cvd 95.61 22d traded 17 / 10K
2. SFRM3 95.00/94.50 1x2 put spread ppr pd 00-1 on 50K (ref SFRM3 @ 95.92)
3. SFRM3 95.75/95.50/95.25 put fly ppr pd 2.5 on 25K (ref SFRM3 @ 95.86)
4. SFRZ3 94.25/94.625/95.125 broken call fly ppr pd 6 on 25K (ref SFRZ3 @ 96.27)
5. SFRU3 94.50/94.00 put spread ppr sold 35K @ 7.5 (ref SFRU3 @ 96.37)
Thursday 3/16/23:
1. SFRJ3 95.25/95.50/95.75/96.00 C CO w/ SFRM3 95.25/95.00/94.75 P FLY as a stupid BOUGHT 40K: a. +7 / 10K b. +7.5 / 10K c. +8 / 10K d. +8.5 / 10K
2. SFRM3 95.00/94.75/94.50 put fly BOUGHT 20K a. +3 / 5K b. +3.5 / 5K c. +4 / 10K (ref SFRM3 @ 95.35)
3. SFRK3 95.00/94.75/94.50 put fly BOUGHT 10k a. +4 / 5K b. 4.5 / 5K (ref SFRM3 @ 95.27)
Friday 3/17/23:
1. SFRJ3 95.00/94.50 put spread ppr pd 12.25 / 20K (ref SFRM3 @ 95.37) 2. SFRM3 94.875/94.75/94.625/94.50 put condor ppr pd 1.75 on 10K (ref SFRM3 @ 95.46) 3. SFRU3 94.50/94.25 put spread cvd 95.67 5d ppr sold 35K at 4 (ref SFRU3 @ 95.67) 4. SFRK3 95.1875/95.4375/95.6875 call fly BOUGHT 20K: a. +2.25 / 10K b. +2.5 / 5K c. +2.75 / 5K 5. SFRM3 95.1875/95.4375/95.6875 call fly ppr pd 2 / 20K (ref SFRM3 @ 95.51)
FED Mar 22, 2023 meeting -- Fed Funds target probabilities:
Sunday's (3-17-23) Federal Funds Target Expectations:
450-475 BPS (current): 26.2% prob (-8.1% from Friday 3/17/23 close)
475-500 BPS (+.25): 73.8 % prob (+8.1% from Friday 3/17/23 close)
500+ BPS: 0.0% prob (UNCH from 3/17/23 market close)
The Federal Reserve announces releases its 2nd FOMC statement for the year announcing its new Fed Funds target on Wednesday. Buckle up. . . . let's see what interest rates have in store for us this week.
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