Friday, September 07, 2018 8:25:51 PM
How A Mystery Bond Trader Made $10 Million In Minutes On Today's Jobs Report
Today's jobs report - which showed the fastest wage growth since the crisis, in the process sending bond yields surging - was not only lucky for America; it also made at least one bond trader’s richer by $10 million. That, according to Bloomberg, is how much the lucky gambler made in the span of minutes on just one trade as bond yields spiked following the spectacular print.
The bond trader, who was convinced the payrolls report would show an overheating economy, decided to buy puts on 10 Year treasury futures, a bearish bet which cost him about $2.5 million when the 10Y was yielding 2.88%. For the puts to be in the money, the yields - which have been trading in a very tight range in recent weeks - needed to hit 2.90% by the end of the day, and anything above that would be just added profit. Well, as it happened the mystery trader lucked out, and the unexpectedly strong spike in average hourly earnings pushed the 10-year yield to almost 2.95%, resulting in a tidy 500% profit on the trade.
Bloomberg's Edward Bolingbroke explains the details of the trade:
At 8:06 a.m. New York time, with the 10-year note futures contract trading around 120-06, 50,000 September Week 1 120 puts were bought at a price of 3 ticks. With open interest in the option only about 12,000 contracts, the trade is consistent with a new position. The 120 strike corresponds roughly to a 2.90 percent yield. As the underlying futures price slid to 119-19, the option’s price jumped to around 16 ticks, according to traders in New York, and the value of the position to $12.5 million.
And visually:
It wasn't clear if Trader X had closed out his position, although with that kind of profit and with an immediate expiry, one would be silly to stand on the put. And, after Trump's surprising threat of an additional $267BN in Chinese tariffs, it wouldn't be surprising if he is now taking the other side of the trade on, as yields are once again slowly fading.
In any event, America's blistering wage growth just made the full year bonus for at least one lucky trader.
Today's jobs report - which showed the fastest wage growth since the crisis, in the process sending bond yields surging - was not only lucky for America; it also made at least one bond trader’s richer by $10 million. That, according to Bloomberg, is how much the lucky gambler made in the span of minutes on just one trade as bond yields spiked following the spectacular print.
The bond trader, who was convinced the payrolls report would show an overheating economy, decided to buy puts on 10 Year treasury futures, a bearish bet which cost him about $2.5 million when the 10Y was yielding 2.88%. For the puts to be in the money, the yields - which have been trading in a very tight range in recent weeks - needed to hit 2.90% by the end of the day, and anything above that would be just added profit. Well, as it happened the mystery trader lucked out, and the unexpectedly strong spike in average hourly earnings pushed the 10-year yield to almost 2.95%, resulting in a tidy 500% profit on the trade.
Bloomberg's Edward Bolingbroke explains the details of the trade:
At 8:06 a.m. New York time, with the 10-year note futures contract trading around 120-06, 50,000 September Week 1 120 puts were bought at a price of 3 ticks. With open interest in the option only about 12,000 contracts, the trade is consistent with a new position. The 120 strike corresponds roughly to a 2.90 percent yield. As the underlying futures price slid to 119-19, the option’s price jumped to around 16 ticks, according to traders in New York, and the value of the position to $12.5 million.
And visually:
It wasn't clear if Trader X had closed out his position, although with that kind of profit and with an immediate expiry, one would be silly to stand on the put. And, after Trump's surprising threat of an additional $267BN in Chinese tariffs, it wouldn't be surprising if he is now taking the other side of the trade on, as yields are once again slowly fading.
In any event, America's blistering wage growth just made the full year bonus for at least one lucky trader.
The only place where success comes before work is in the dictionary
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