Quote from Martinghoul:
Yep, so this is definitely a theme that's playing itself out in the mkt over the past few days (driven by all sorts of forecasts for what exactly happens at Jackson Hole). For example, one type of trade is various structures that oppose the "hockey stick"'ness of the Eurodollar strip. For example, buying the u4u5u6 fly is a trade that performs really well in the extremes, i.e. either 1) a robust economic recovery and early Fed hikes, or 2) another 5 yrs of really painful deleveraging, uncertainty over the fate of the Eurozone etc, where Fed is on hold for a long long time. It might also perform if/when the mkt prices Bernanke going away. Problem with these types of trades and the reason why they look so attractive at the moment is that they "fade" the "extended guidance" language. A trade of this sort went through yesterday (probably more of a "Bernanke goes" rationale) with someone selling 16.5 bags of the h3m3h4m4 condor (sold h3m3 vs bot h4m4).
Today it's been all about the other theme, which is, basically, to oppose the steepness in the back greens and blues through options. So you write off some premium to buy some straight upside in blues/golds. The rationale for this is just that people are expecting some sort of "extended guidance" language to be announced at JH. These went through in pretty massive size today, as well as yesterday. For example, someone bot 40 bags of the gold Sep midcurve (14Sep2012 expiry onto the u6 contract) 98.75/98.875 call spreads for a tick.
Eurodollar strip is colored like this (all in reference to quarterly contracts)Quote from Pippi436:
Could someone explain what blues/greens/golds are? Not really privvy with the rates-lingo..
It is absolutely possible. Obviously, the reasoning behind such a trade will need to take into account the holding period. In general, I think it's very healthy to try and diversify across time horizons and have trades of all sorts. The beauty of Eurodollars is that, with futures and options, there's soooo many combinations and playoffs you can construct, it's not even funny. The drawback of Eurodollars is that it's a very liquid and mature mkt, which means that there's a lot of people looking at it. Most of the time it's very hard to find genuinely good trades.Quote from comintel:
I am interested in setting up some long-term positions - maybe for 2 or 3 years.
Do you think this is possible or is it better to place a series of shorter term bets, say every few months, and take small losses on most of them while waiting for the big winner which could be a a couple of years out.
Yes, that's right... There's also a new dimension that's been somewhat key after the financial crisis, but isn't too important right now. Specifically, Eurodollar prices also incorporate a proxy measure of the health and liquidity of the banking system, i.e. the LIBOR-OIS spread. There are a few other nuances, such as "the turn", etc.Quote from foo:
So are you saying most opportunities are changes in perception on where rates may head or, maybe where the economy is heading....great thread...looking forward to this discussion.