By Kevin Muir
Quick – someone asks you whether you will bet on Hillary Clinton winning the next election. Would you take that bet? At even odds, you would have to be insane. But what if someone offered you 100-to-1 odds? How about 1000-to-1? At a certain point, it’s worth a punt.
And this is the trouble with discussing option trading. At times, even if you don’t think a specific outcome the most probable result, it still makes sense to take a position based on the market underpricing the probability of that outcome. It’s a nuanced difference, but often missed by the financial media.
I am not a big Eurodollar futures trader, but I recognize that it is one of the biggest, most liquid markets in the world. And if you are a STIR (short term interest rates) trader, then you are most likely aware of the interesting option order flow that has been crossing the tape all summer long. The pits are abuzz with talk, but for the rest of us who aren’t clued into the intricacies of the fixed-income option market, we are probably overlooking this huge bet that is being slapped on.