Question about eurodollar futures?

[johnymm]

If the eurodollar futures contract start at 99 in the beginning of the 3 months - does it mean that it will end at 100 - at expiry? I know it can have some heavy swings...if LIBOR rises or especially if libor falls - but i want to know if it edns at 100...or 99.99...something like that.

10x

 

[Martinghoul]

No... It's not a bond, so there's no pull-to-par effect. It will end at whatever price that's implied by the LIBOR fixing on the Monday before the last trading day.

 

[johnymm]

No... It's not a bond, so there's no pull-to-par effect. It will end at whatever price that's implied by the LIBOR fixing on the Monday before the last trading day.

thannks, that's what i was afraid of...the call options seemed rediculously cheap to me if that was the case....but...as usually

 

[Martinghoul]

Sorry, I should be more careful. I meant to say "on the Monday, which IS the last trading day".

 

[meanreversion]

Can this contract rise to above 100? I think there have been instances of negative rates in places like Switzerland and Singapore during various crises in the past, could this drive eurodollar above 100?

The graph of this contract is something else, one large long sweep higher and higher. I'm guessing 90 pct of people think it can only go down, so maybe it continues to grind higher, OR some kind of crisis makes it pop.

 

[MrGecko]

dunno for certain, but I'm pretty sure there have been options on them listed w/ strikes higher than 100

 

[meanreversion]

My trend filter is still showing an uptrend for this contract although it's right on the cusp. As such, I'll be looking to take long positions. There looks to be fantastic potential for a massive move relative to ATR in either direction ... e.g., another financial crisis and it heads towards 100, or the Fed remove the "considerable period" bit from their statement and it collapses.

 

[N Rothschild]

looks like ED could go a bit higher

 

[meanreversion]

Agreed on that, but how? Fed isn't about to cut rates .. it needs something else to push it.

 

[N Rothschild]

no idea mate, interest rates arnt my forte'. was just applying my stratagey to it and it looks like there is more upside

 

[meanreversion]

Yeah, done the same here.

Whichever way you slice it, volatility has never been lower in this contract, so the next big breakout could be a HUGE trading opportunity.

 

[N Rothschild]

volatility is rock bottom all across the board, something is a brewing

 

[Martinghoul]

There's no reason why Eurodollar, in theory, can't go above 100.

It's been going higher, because a) Fed's on hold; b) LIBOR - Funds spread has done nothing but compress. Much like other risk premia, it's done nothing but go down recently and is, basically, back to pre-2007 levels. Welcome to the brave new old world.

 

[meanreversion]

Do you trade this contract?

 

[Martinghoul]

Among other things, yes...

 

[meanreversion]

It's the most liquid future (I believe) yet I rarely see anyone talk about it on t2w.

Has it been a good trading market over the last year, or is it a case that if you weren't long and riding the trend, it was a bit futile?

 

[N Rothschild]

ES is the most liquid

 

[MrGecko]

liquid in $$ terms i think it means

 

[Martinghoul]

It's been very boring, since it's a matter of a single grand macro theme. If you had the balls and believed what the Fed told you, it's been the mother of all carry trades throughout last year. But that's a fire-and-forget sort of position. As to the rest, there wasn't anything meaningful to do, as far as I am concerned.

 

[meanreversion]

Thanks, that's informative. I've not traded that contract before but it produces some good results on my trading system so I might add it in.