Treasury Option Action: positioning on the wings
Treasury Option Action: positioning on the wings was reported earlier heading into and out of Yellen's speech as the safety premium ticked up after she didn't say anything to tip the Fed's hand on policy per se. First up were bearish dealer purchases of December 108.00/107.75 put spreads against a sale of 108.375 calls on 2-year futures, which wins on a move toward 1.41% on the underlying 2-year yield and incurs losses on a reversal to 1.26% or below compared to 1.35% at the time. At the long-end there were 5k in purchases of December 127.50 calls on 10-year futures, along with a bullish purchase of 2.7k in October 129.00 calls against a sale of 2.7k in October 124.00 puts said to target 1.87% from 2.19% on underlying cash 10s, and lose at 2.48% or above. There was some speculation that traders were taking a flight-to-safety page out of the Katrina playbook if Hurricane Harvey is as damaging.