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Euribor Option Comment **27/01**

Euribor got all the action today as we saw a further sell off to new recent lows in the strip, Mr Smaghi the instigator.

Early in the day we saw agressive vol selling in ERM1 and ERJ1, both in put and call spreads by you know who (all new positions I'm told). Perhaps this was in anticipation of a near term bottom in the futures and almost all the subsequent trades have suggested that sentiment. He may possibly have prefered to have put these on post the Smaghi comments though I guess.

After this we saw the return of the upside today as we saw a flurry of call spreads being bought particularly in front June. Perhaps the only exception of note was a large buyer of a June put condor in 22.5K which was hardly a highly directional trade. Paper were aggressive buyers of the 98.875/99.00 call spread for 1.5 (total of 20K) and the 98.75/98.875 call spread for 4 in 10K. This is a further signal of where the mkt believes the rate hike 'pivot' may be with limited action seen in contracts further out. We had a little interest in these trades ourselves and they seem to make sense as a cheaper way of having some upside delta in a pretty crowded mkt.

We also saw a smattering of short term upside plays in Feb mid-curve on ERH2 but not a huge amount to write home about.

It would seem that in vol terms that the afternoon only cancelled out activity in the morning and so vol remains pretty much unchanged, relatively softer in March to Sep and then slightly firmer further out.

16:01 ERM1 +5k 98.875/99 Call SPREAD for 1.5                          
15:44 ERZ1 -5k 96 Put @ 2
15:43 ERZ1 +5k 98.5/98.625/98.75/98.875 Call CONDOR for 2.5
15:09 ERM1 +13k 98.875/99 Call SPREAD for 1.5
14:03 ERH1 +2k 98.875 STRADDLE for 10.5 vol 30.5
14:00 ERM1 +13.5k 98.875/99 Call SPREAD for 1.5
12:50 ERM1 +10k 98.75/98.875 Call SPREAD for 4
12:39 ERM1 +22.5k 98.875/98.75/98.625/98.5 Put CONDOR for 5 vs 63 3% delta
11:21 0RG1 +2k 98.125/98.375 Call SPREAD for 3
11:19 0RG1 +2k 98.125/98.375/98.5 Call FLY for 3
10:56 ERM1 -5k 98.625/98.5/98.375/98.25 Put CONDOR @ 2.5
09:21 ERU1 +4k 97.75 Put for 5.5
08:54 ERM1 -17.5k 98.625/98.5 Put SPREAD @ 3.5
08:52 ERM1 -17.5k 98.75 Put @ 17.5
08:50 ERJ1 -17.5k 98.75/98.875 Call SPREAD @ 3
08:23 0RG1 +3k 98.125 Call for 3.5
07:37 0RG1 +3k 97.875/97.75 Put 1x2 for 0

DS