Jul 09 2009
Updates On Recent Eurodollar and Bond Trade Ideas
Just wanted to follow up on A Eurodollar Convergence Trade.
There’s been a lot of movement in both LIBOR and the December Eurodollar futures. A quick check shows 3mo LIBOR at 0.51%, which means the break-even value for Eurodollar futures is at 99.49. The Dec contract was recently trading at 99.23, so if LIBOR holds at current levels there’s still about 26bps worth of convergence left to be had in the next 5 months. This is on top of the 50bps the futures are already up since that original post.
As for the options, here’s a snapshot view of the current action. Unfortunately, the 98.75s which were the at-the-money calls when I first wrote-up the trade idea are no longer in the frame of the more actively traded ones. Even still, we could come up with a rough idea where they are currently trading. The 99.125s are trading about 15bps above intrinsic value (25bps less 99.23-99.125). Applying that spread to the 98.75s and we get a price of something like 63bps. That’s nearly a 100% gain on the 32bps which would have been the original cost, with the potential for more.
As for the call spread I outlined, buying the 98.75s and selling the 99s, that”s basically already locked in at or very close to maximum profit since the market is well through the 99 level.
On the If the US is Japan, Buy Long Bonds trade idea, December T-Bond futures were up through 120 yesterday for a little while. That was a 4 point or so gain from when I wrote up the idea. Of course this is only chump change compared to the idea of how far the market could go if the underlying idea is right, but it’s a good start.
Here are some other posts which might interest you:
