2 trades:
1. Long CME Eurodollar Dec’21 100.00 CALL (GEZ1 @0.005
2. Long CME Eurodollar Dec’21 99.875 / 100.00 BULL CALL SPREAD (GEZ1 99.875/100 CS) @ 0.00
Time frame: < 1yr (up to expiry)
Expected gain (max before taking profit):
•100C @ 0.005 ($12.50/contract) → 0.100 ($250/contract) +1,900%
•98.75/100 CS @ 0.00 ($0)→ $725 per call spread
Max Loss:
•100C @ 0.005 ($12.50/contract) → 100%
•98.75/100 CS @ 0.00 ($0)→ Risk free
Eurodollar futures from June’21 forward have sold off since election/Biden + Pfizer vaccine news as FOMC rate hike probability inches up. 100 strike calls = bet on market pricing neg rates in US.
Note: “MARKET PRICING IN Fed Funds at/below zero,” and not “FOMC OFFICIAL POLICY RATE CUT NEG“ - don’t need neg rates, just need market to believe it. Fed Fund Futures were above 100 (neg rates) for many weeks on end this summer. Eurodollar futures can easily scare as well.
IF GEZ1 hits 100, my view is that they won’t just sit at 100.00, they’ll over-shoot well through 100.00 (once zero blind is broken, Fed theoretically could cut indefinitely neg) setting up for convex return profile on ITM calls.
100 strike calls filled at 0.005 is bottom tick- there is no cheaper increment below, literally market bottom (0.005 = $12.50/contract).
99.875/100 call spread filled at zero is self explanatory- you have the trade on for free. upside is capped to just under $800, but cost at zero means any upside is infinity % return
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