On Tuesday, someone ponied up almost $10 million to buy out-of-the-money put and call options simultaneously on 10-year Treasury futures, in what’s known as a strangle, according to data compiled by Bloomberg and observations of trading levels. The position caught the market’s attention because it involved block sizes of about 63,500, according to CME Group Inc. data. A strangle of that magnitude is rare, and possibly unprecedented, say rates traders familiar with the market.
The strategy, which expires July 21, looked promising Wednesday, when Fed Chair Janet Yellen’s testimony sent the 10-year yield down as much as six basis points. But the decline came to a halt after the Bank of Canada hiked rates as expected.
Turbulence Needed
Therein lies the challenge for this trade: Small swings won’t cut it. Just to recoup the premium, the 10-year yield would have to rise or fall about 10 basis points from about 2.38 percent, according to data compiled by Bloomberg. Once it passes that point, there’s no cap to the potential profit. For example, it stands to gain about $50 million on a quarter-point move in either direction from the starting level, which would involve approaching this year’s highs and lows for 10-year yields.
https://www.bloomberg.com/news/arti...0-million-that-volatility-revival-is-imminent
So, are we finally going to rock that building called "bond super cycle"?
The strategy, which expires July 21, looked promising Wednesday, when Fed Chair Janet Yellen’s testimony sent the 10-year yield down as much as six basis points. But the decline came to a halt after the Bank of Canada hiked rates as expected.
Turbulence Needed
Therein lies the challenge for this trade: Small swings won’t cut it. Just to recoup the premium, the 10-year yield would have to rise or fall about 10 basis points from about 2.38 percent, according to data compiled by Bloomberg. Once it passes that point, there’s no cap to the potential profit. For example, it stands to gain about $50 million on a quarter-point move in either direction from the starting level, which would involve approaching this year’s highs and lows for 10-year yields.
https://www.bloomberg.com/news/arti...0-million-that-volatility-revival-is-imminent
So, are we finally going to rock that building called "bond super cycle"?
