Project Description

[Trade F28, July 10, 2016]

I really like this very cheap look at a Dec hike (vs a Sept hike).  This also gives us ease protection before October, and libor-FF blowout protection.

*** Buy 1.5x FFV6 vs Sell 1x EDZ6 @ 50.135 (50.125 settle)

Note that this 90 FF contracts per 100 ED contracts.  Reasons to do the trade:

  • This structure gets you long for a half a Sept meeting vs short for a full Dec meeting. When there is 2bps of a hike in the September meeting and only 3.25 bps of a hike in the December meeting, I like the risk / reward.  The reason we are only getting long 50% of the Sept meeting is on some bizarre tail event (where Brexit gets cancelled, we suddenly get inflation, etc).  If you are comfortable with the Sept and Nov meeting risk, you can always buy up to 0.5x more FFV.  But we also have the longs who like buying front-end protection, so I don’t think getting overly long FFV is that great.
  • If the Fed hikes in Dec, we make 20+ bps. The exact amount will depend on what happens to the ED-FF spread.  But it will be a substantial amount.
  • We get ease protection. The Fed eases at any meeting before the Dec meeting and we make 12bps or so.
  • We get libor blowout protection. Libor-FF blows out to 50 bps, and we make over 20 bps (assuming FF stays the same).

We bought 3 of 6 units at 50.135, and scaled in 1 unit every half bp below to Friday’s settle.

Let me know if you get them (and the level), and I’ll send you any updates.


[This trade was sent out July 10, 2016.  Profit was taken July 17, but much more profit was to be had.]