Options Observer – Eurodollar Mid-Curve options spring to life

Given the prospects of increased stimulus, a reduction in the unemployment rate from a peak of 14.8% to 6.3%, and rising inflationary expectations as priced in US TIPS securities, trading activity in Eurodollars is ramping up as the market evaluates when the Fed may begin to normalize monetary policy (View CME FedWatch tool).

Notably, volume and open positions have surged in shorter-dated options targeting 2023 and 2024 Eurodollar futures:

  • 2-Year (E2) and 3-Year (E3) Mid-Curve options account for 64% of Eurodollar options volume YTD, compared to 17% in 2020
  • Combined open interest in E2 and E3 has doubled YTD to 9.8 million contracts

Figure 1: Eurodollar options annual average daily volume (2011 – 2021 YTD)

Source: CME Group

2-Year Mid-Curve options (Greens)

  • Volume has jumped to 229K contracts/day YTD, the highest levels since May 2019
    • 766K contracts traded on Feb. 12
  • Open interest +140% YTD to 4.7 million contracts, the highest levels since August 2019
    • 947K contracts held in March 2021 contract (23 DTE, underlying future EDH3)
    • 1.6 million contracts held in the June 2021 contract (114 DTE, underlying future EDM3)

Figure 2: Daily open interest in 2-Year Mid-Curve options (January 5, 2011 – February 16, 2021)

Source: CME Group

3-Year Mid-Curve options (Blues)

On the heels of their 10th anniversary, 3-Year Mid-Curve options have seen volume and open interest surge to all-time highs:

  • January saw record volume of 313K contracts/day
  • February volume is averaging 384K contracts/day MTD
  • A record 994K contracts traded on Feb. 16
  • Open interest +91% YTD to 5.37 million contracts, an all-time high
    • 2 million contracts held in the March 2021 contract (23 DTE, underlying futures EDH4)
    • 1.3 million contracts held in the June 2021 contract (114 DTE, underlying futures EDM4)

Figure 3: Daily volume and open interest in 3-Year Mid-Curve options (January 5, 2011 – February 16, 2021)

Source: CME Group

View detailed positioning data by strike and expiry

The Open Interest Heatmap tool, powered by QuikStrike, lets you see instantly which option calls and puts have the most trading, by strike and expiration, and compare vs. the last day/week/month.

Figure 4: QuikStrike Open Interest Heatmap

Source: QuikStrike

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