OTM 5YR Note Calls

Discussion in 'Financial Futures' started by JohnL111, Dec 3, 2008.

  1. Does anyone (mcurto?) have information why there is significant OI in the March 162-210 strike calls? It looks like those prices are corresponding to -5% to -10% interest rates. It does not appear convexity related, perhaps another type of hedge. Not much premium paid, but it looks to be worthless unless you see the mother of all short squeezes!

  2. 1) Traders can do "daisy chain" trades with one another to establish open interest in far-out-of-the money strike prices in order to prevent that strike price from being delisted.
    2) Since the open interest is 5-figures, maybe some gamma-players have done a trade with teeny-sellers on the other side of it.
    3) Those 81-puts would be more exciting if they "came in"! :cool:
  3. Daal


    thats bernanke investing for his retirement account. he wants to frontrun the mother of all FOMC statements :p
  4. Not sure how you arrived at the negative interest rate implication. If the Fed is as serious as it seems to be about ZIRP, those prices are really not that out of the question (the closer yield gets to zero, the more vertical the price changes).

    It's an aggressive play, for sure, but not without rationale. Heck, maybe it's Taleb stretching the wings again.
  5. The theoretical price to earn a zero return is 130 (the duration is not infinite, it is bounded at 5yr). Perhaps some repo implications if yields approach zero?
  6. My apologies - your numbers are fine, brain fart on my end. Using the strikes you mentioned I get a YTM of around -7%.

    I'll shut up and listen now. :)