Eurodollar spreading

Discussion in 'Financial Futures' started by cdcaveman, Nov 14, 2013.

  1. Yes, correct, when you're long the calendar spread, you've got a steepener (long shorter-dated futures, short longer-dated futures).
    Right, so if you've got a flattener (short shorter-dated futures, long longer-dated futures) you could potentially benefit from two possible outcomes: 1) rate rises don't happen for a long time and both your contracts "roll" down; 2) rate rises happen earlier than the mkt expects and not much more is priced.
    Yes, given the current shape of the Eurodollar strip, this type of flattener trade will "roll" in your favor. Obviously, you're taking on some risk in exchange for this "rolldown" (a "flattener" in a current regime is a long the mkt trade).
     
    #11     Nov 15, 2013
  2. Quote from cdcaveman:


    a long calender in every product i've ever traded has been short front future, long back future,, and or options

    maybe you said that wrong? when i'm saying long interest rate i'm saying short futures contract.. interest rates go up, when futures go down.....

    a steepening of the curve would be the front contract going up in relation to the back contract going down or just a widening..

    then being long the front and short the back, would be a short calender spread,, in which you would be short near term interest rates(or long the futures), and long long term interest rates(or short the futures)..

    are we on the same page? as long as i ever knew.. a long calender spread was short the front contract... unless in this product a long calender is referring to the interest rate curve derived from the futures contract prices..
     
    #12     Nov 15, 2013
  3. roll down,, here means convergence to spot.. the nature flow of far dated futures spreads to near dated futures spread, "roll off" the end of the interest rate curve.. this is where the front falls off the curve faster then the back is..

    so a "flattener" or roll down spread in the current regime? you mean current fed environement? and what do you mean "a long the market trade" ....??
     
    #13     Nov 15, 2013
  4. Dunno about other products, but in Eurodollars a long calendar spread position is defined as being long the nearer and short the further contract.

    And let's stick to a consistent terminology. So don't say "long interest rate", since that's very confusing. In rates, "long" is always used to refer to a position where you benefit from rates going down, i.e. long the futures.
    This is a long cal spread position and see above re terminology.
    Well, you see in rates everything is backwards because prices are the inverse of rates.
     
    #14     Nov 16, 2013


  5. perfect.. i know exactly now how to speak the language..
     
    #15     Nov 16, 2013
  6. Yes, I mean current Fed stance. By "long the mkt trade" I mean that, at the moment, Eurodollar flattener trades behave like longs, i.e. the Eurodollar strip tends to flatten on a rally (rates going down) and steepen on a selloff (rates going up).
     
    #16     Nov 16, 2013

  7. it seems to me the entire verbage is related to the interest rate curve derived from futures prices.. as in the front has a lower interest rate and gradually gets to be a larger interest rate as you head towards the back, creating a curve that looks like contango..

    so when you say steeper you mean the interest rates are going down in the front and up in the back.. a flattening trade would send the interest rates flatter, higher in front, lower in the back.. i've heard that have inverted before... my father told me..

    naturally investors require higher rates on longer maturity bonds, putting the interest rate typically higher the farther you go out.. this is all correct right..
    Honestly i've watched the price action of the curve for the last month, and i can see how i could trade it, yet i didn't have a complete understanding of what the heck it all meant.. plus, i won't trade any new products unless i've got a in depth understanding and have done in depth historical studies on the relationships and there bounds..
     
    #17     Nov 16, 2013
  8. You got it... And yeah, it's a somewhat esoteric world, so it's worth exploring it first, before you decide to dive in. There are some good books/papers that can help, if you need.
     
    #18     Nov 16, 2013
  9. i've read a few papers on the cmegroup website..

    http://www.cmegroup.com/trading/interest-rates/files/eurodollar-futures-reference-guide.pdf

    http://www.cmegroup.com/trading/int...lar_Futures_Interest_Rate_Building_Blocks.pdf

    got any others>>>>?? alot of the papers show the arb relationships amoungst other interest rate products.. obviously not to many talk about strategies for trading..
     
    #19     Nov 16, 2013
  10. These papers are really there to advertise CME products.

    I would suggest "Understanding the Yield Curve" papers by Antti Ilmanen (you can google for them), as well as the "Eurodollar Futures and Options Handbook" (that's a proper book).
     
    #20     Nov 16, 2013
    wlnd likes this.