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New 3-Month OIS options can be used in combination with Eurodollar options to create conditional spread trades that allow you to express market views about the OIS-LIBOR spread. As in conditional quarterly vs. midcurve trades, if the market goes against you the trade goes away, in other words, it’s conditional on your view. However, anyone experienced with conditional curve trades knows that if volatility goes against you, all bets are off. So implicit in any strategy is a view of the relative volatility of OIS options vs. ED options. Nonetheless, the two options can be used to construct some unique trades. This short piece will explain when and how you might implement such a strategy plus the contract specifications you need to start trading.
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