Eurodollar Futures Options With Zero/Negative Strikes!

I saw something bizarre. Other financial websites/blogs haven't mentioned this. There are some Eurodollar futures options with a zero/negative strike! More than two zero strike options have volume and open interest! (They are December and January and March 100 strike Eurodollar call options.) The other zero/negative strikes have a price quoted, but no open interest.

My employer's computers only process strikes with volume, rather than all strikes. That's a bug. If someone trades a strike for the first time, then the intraday calculations would be wrong. There's probably also a fencepost error when new options/futures/bonds are listed. The zero strike caused the program to crash. If the strike is zero/negative, then you're taking the log of a zero/negative number when you apply the Black-Scholes formula.

A Eurodollar future is a bet on what 3-month LIBOR will be in the future. LIBOR is the London dollar borrowing rate. That leads to the term "Eurodollar". However, 3 month LIBOR yield should closely track the 3 month Treasury yield. If they differed much, then some bankster would borrow in the USA and lend in London, or vice versa.

The "settlement price" is the interest rate. A price of 99 corresponds to an interest rate of 1%. A price of 98 corresponds to an interest rate of 2%. 100 corresponds to 0%. 101 corresponds to -1%. (Bond prices move the opposite sign as interest rates.) The future is cash-settled, because there's no actual underlying bond. It's based on a hypothetical 3 month bond yielding LIBOR.

One Eurodollar future corresponds to a hypothetical $1M investment. A change of 1% corresponds to $1M * 1% * 1/4 = $2500. (The 1/4 comes from "3 month" LIBOR. It's 3 months of interest on $1M at the settlement rate. There's a slight rounding error, but that's the settlement formula.)

The Eurodollar future is cash-settled based on the formula at expiration. It's based on 3 month LIBOR on settlement day. Prior to settlement, it's priced "mark-to-market" based on the futures trading price.

You can also buy Eurodollar futures options. It's an option that settles to a future when exercised. The strike is the interest rate. 99=1%, 100=0%, 101=-1%.

There was a Eurodollar futures option with a strike of 100 (0%) and nonzero volume, crashing my employer's software. If you look on the CME page (direct links to the CME website don't always work, so you may have to navigate), you can see strikes of 100 or more listed. Notice that the December 100 strike call has an "open interest" of 471. The January 100 strike call has an "open interest" of 200. The March 100 strike call has an "open interest" of 2, 801. The March 100 strike put has an "open interest" of 1 contract. Someone actually bought those calls! ("100 strike call" means "0% strike call". The option would be in-the-money only if the 3-month LIBOR rate drops below 0% on settlement day.)

How can LIBOR go below 0%? The Federal Reserve keeps the Fed Funds Rate near zero, *AND* banks get interest on reserves. If the Fed Funds Rate is 0.1% and banks get 0.25% on reserves, then LIBOR could be -0.15%. The banksters are explicitly borrowing and then lending for a guaranteed riskless profit. Only the largest banks get to make this trade, the "primary dealers". It's a stealth bank bailout.

"Primary dealers" are the biggest banks. They get the perk of borrowing directly from the Federal Reserve. A "primary dealer" might borrow directly from the Federal Reserve at 0.1%, but smaller banks might have to borrow at 0.3% on the secondary Fed Funds Rate market. With 0.25% interest on reserves, the primary dealers are getting a huge bailout that smaller banks don't get. That's a big State-granted perk for the "primary dealers". They get to borrow more cheaply than everyone else.

There were many Eurodollar futures call options that traded for a strike of 0%. That's very interesting. I didn't see any other financial blog highlight that. The Federal Reserve has lowered nominal interest rates below 0%. Remember that "real interest rates" equal "nominal interest rate" minus "true inflation". Nominal interest rates are close to 0% or even negative. Real interest rates are -20% or lower. That's a huge State subsidy to insiders. Everyone else pays the cost via inflation.

What Happened To Ireland's Independence?

The "Ireland debt crisis" is an interesting example of State corruption and financial corruption.

Since when did Ireland become a nation of wimps? The IRA (Irish Republican Army) fought the UK for independence for decades. Now, a handful of banksters have enslaved Ireland, via debt and fiat money. Nobody is complaining much.

Interestingly, the banksters who own the Irish national debt are probably British, although the exact identity isn't revealed.

That's the advantage of debt enslavement compared with a military conquest. Debt enslavement is presumed legitimate. "The national debt is sacred and must be repaid!" is one of the best economic lies of all time. Most "national debt" is owned by insiders. They will always profitably lobby to prevent a national debt default. If you own $10B+ of government debt, it's very easy to lobby against default.

The banksters borrow at the Fed Funds Rate (or ECB central bank rate) and buy government debt. It's practically risk-free profit. The banksters borrow from the government and lend to the government, taking a cut. They don't have a legitimate debt ownership claim. The banksters don't legitimately own the national debt, because their debt purchase is State-subsidized.

That's ironic. Almost every country has a huge "national debt". The big question is "To whom is this debt owed?" The "national debt" is mostly owned by the banksters. They borrow from the central bank at cheap rates and buy the national debt, earning a practically riskless profit.

Not counting debt payments, Ireland has a positive balance of trade. Irish exports > Irish imports. How did Ireland get into economic trouble?

1. Ireland is a member of the EU and Euro.
2. The ECB (Euro central bank) kept interest rates artificially low a few years ago, just like the Federal Reserve kept interest rates low in the USA around 2001-2004.
3. This caused a housing bubble in Ireland, exactly the same as in the USA.
4. The banksters made a ton of money during the housing bubble.
5. The Irish housing bubble burst.
6. The Irish banks are bankrupt.
7. The Irish banks are "too big to fail".
8. The Irish government bailed out the Irish banks. More technically, they bailed out the other banks who lent the Irish banks money.
9. Now the Irish government is broke.
10. The other EU members are demanding tax hikes in Ireland, in exchange for a bailout.
    

The US government is issuer for the dollar. They can always print more bonds to roll over the debt. They can always create more Federal Reserve Notes and finance more debt. The US government still has monetary sovereignty, although they did partially delegate that power to the Federal Reserve.

Ireland is a member of the Euro and EU. They gave up control of their money. That's functionally equivalent to ceding sovereignty. Ireland can't just print new money/bonds like the US government can. Ireland's government doesn't control its own money.

By joining the EU, Ireland gave up its hard-earned freedom.

Ireland has relatively low tax rates compared to the rest of the EU. That's one reason they're economically successful. The tax hikes will decrease Ireland's economic advantage.

Why don't the Irish people say "We aren't the ones who caused the housing bubble. We fought the UK for freedom, just to be debt-enslaved by some British banksters? We're not paying! We're defaulting!"

Ireland is an excellent example of the bankster scam. The banksters speculate. They make huge profits during the boom. The get bailed out during the bust. The government has huge debt for the bailout. They must raise taxes and cut spending, to pay off the national debt.

The Compound Interest Paradox guarantees that everyone is enslaved under a crushing debt burden. That leads to the current perverse situation. Every government is almost broke due to crushing "national debt". To whom is this debt owed? The banksters own the national debt.

The banksters borrow from the government and lend to the government, via central bank borrowing and purchasing government debt. The slaves pay higher taxes so that the banksters can earn huge salaries without doing any useful work. "Interest on the national debt" is the #1 expense for most governments.

These are two of the top economic lies of all time. They are "too big to fail" and "The national debt is sacred and must be repaid." When a big bank is bailed out, that's a stealth bailout of that bank's creditors, which is usually an even bigger bank.

The "national debt" is an excuse for higher taxes, higher inflation, and "austerity measures". Why can't a country say "We're defaulting!"? If you lend money to someone who can't afford to pay, you deserve to lose your investment.

Why can't Ireland drop out of the EU and default?

It's very ironic. After fighting for decades for freedom, Ireland is now enslaved by British banksters, and everyone presumes it's legitimate.

"Best of FSK" - November 2010

"The Communist Manifesto's Successful Implementation in the USA" was cited on FaceBook. Because of the way FaceBook works (and other php-based sites), I don't know who was citing my blog. Reviewing that post, if you read the Communist Manifesto, the USA is a nearly perfect implementation of Communism.

So far, Seroquel seems to be working well for me. I'm very sensitive to negative side-effects and I'm not noticing any. On the other drugs I've tried, I wasn't able to do anything. With Seroquel, I'm able to do all my normal stuff. I seem to need more sleep, but I'm able to work normally.

Bizarrely, I'm not color blind anymore! I can verify by playing certain computer games. For example, I used to struggle on level 7-1 of Q*Bert (arcade version - MAME), because I couldn't make out the colors. I don't have that problem anymore. That supports my theory "Seroquel is a missing vitamin."

I can still see The Matrix. It's very disturbing. Someone less-unplugged than me who took Seroquel would be horrified/shocked by seeing The Matrix. Basically, everyone is a little crazy. It's somewhat stressful riding the subway, when you can see how everyone else is crazy. I'll make a more detailed post.

If it were somehow possible to get rid of the psychopaths in high-ranking government positions, things should get better without complete collapse. I still wonder if I gave Chuck Schumer's bodyguards and assistants a lesson in The Matrix. I'm not holding my breath waiting. Anarchism/agorism is still the correct answer. However, it would be nice if some non-psychopath government insiders are working on the psychopath problem.

In November 2010, my most popular posts by Absolute Unique Pageviews were:

1. Did the USA Declare Bankruptcy? (379)
2. The Communist Manifesto's Successful Implementation in the USA (374)
3. The Hunt Brothers' Silver Corner (286)
4. Who's the Richest Man in the World? (250)
5. The Federal Reserve Caused the Great Depression (239)
6. BMI/ASCAP/SESAC Legal Extortion Scam (236)
7. Ruby on Rails Sucks! (177)
8. The Monetizing the Debt Scam (161)
9. The Compound Interest Paradox (140)
10. Real GDP is Decreasing, 1990-2008 (121)
11. Satanic Death Hospitals (108)
12. Premium Text Messaging Fraud - 91097 and 654654 (102)
13. Real GDP Is Crashing, 2000-2009 (100)
14. Agorist Philosophy Overview (97)
15. The Gold Lease Rate is Negative! (95)
16. Calculating Vega and other Greeks in Black-Scholes (92)
17. The Gold and Silver Taxation Scam (86)
18. Worldwide Hyperinflation Race (86)
19. StackOverflow Sucks! (84)
20. TSA - Who Benefits? (82)
21. Real GDP is Decreasing, 1990-2007 (81)
22. Statist Witnesses (72)
23. Quantitative Easing 2 (70)
24. The Fluoride Conspiracy Theory (64)
25. I CAN SEE THE MATRIX! (64)
26. The Tone Of The Matrix Has Changed (61)
27. Subliminal Advertising on The Daily Show (59)
28. Dollar Carry Trade (58)
29. How Influential Is Jon Stewart? (58)
30. The USA Has A Severe Psychopath Problem (57)
31. Does Michael J. Fox Have Tardive Dyskinesia? (55)
32. The Five Levels of the Economy (52)
33. The Compound Interest Paradox - a Simpler Explanation (51)
34. Righthaven vs. Charles Johnson (RadGeek) (50)
35. The Black-Scholes Formula is Wrong! - Part 1/12 - Overview and Background (49)
36. Are the GLD and SLV ETFs a Fraud? (49)
37. Are College Athletes Exploited? (47)
38. Is It Worth Hoarding Nickels? (47)
39. How Well Does GLD Track Gold? (46)
40. FSK Attitude Change (46)
41. The Food Safety Modernization Act (45)
42. Why Does Jon Stewart Use A Laugh Track? (43)
43. Verizon LG enV Touch, Bitpim, and Open Source (42)
44. Does Seroquel Cure Color Blindness? (42)
45. The Nymphomaniac Pattern (41)
46. Athletes vs. Doctors, Which is Overpaid? (40)
47. Is Seroquel A Vitamin? (39)
48. The Black-Scholes Formula is Wrong! - Part 2/12 - Axioms (38)

If you only count posts published in November 2010, the most popular were:

1. TSA - Who Benefits? (82)
2. Statist Witnesses (72)
3. I CAN SEE THE MATRIX! (64)
4. The Tone Of The Matrix Has Changed (61)
5. Subliminal Advertising on The Daily Show (59)
6. Dollar Carry Trade (58)
7. How Influential Is Jon Stewart? (58)
8. The USA Has A Severe Psychopath Problem (57)
9. FSK Attitude Change (46)
10. Why Does Jon Stewart Use A Laugh Track? (43)
11. Does Seroquel Cure Color Blindness? (42)
12. Is Seroquel A Vitamin? (39)
13. Beware The Supermarket! (37)
14. Waiting for Stupidman (30)

Cell Phone Driver Update

I finally figured out how to get my LG envTouch driver to work. Bizarrely, this works:

1. unplug DSL modem
2. reinstall driver
3. plug in phone

That's worked every time I've tried it. I have to reinstall the driver every few days to keep it working.

It's very bizarre. It's definitely some sort of driver conflict. I have no idea if I should blame Microsoft or LG.

I moved my mouse to a different USB port, and had to reinstall the driver. Something is messed up.

Silver Round Shortage?

This article by Max Keiser was interesting. Allegedly, JP Morgan Chase has a huge naked short position in silver futures. Max Keiser says "If everyone living in the USA buys one ounce of silver, and takes physical delivery, then JP Morgan Chase would be unable to cover its short position and be bankrupted." The COMEX would also be bankrupted, via a clearing default. The COMEX should not allow one bank to take a huge naked short position. However, as the Hunt Brothers learned, the banksters make the rules.

For example, the COMEX could declare "Instead of settling futures with silver, you can settle them with the FRN-equivalent value. If you wanted actual physical silver, that's just too bad for you." They have done that in the past, when there was a risk of clearing default.

The Federal Reserve's "print money" trick won't work, provided people are demanding actual physical silver. Unless we're in the final stages of hyperinflation, people will sell their silver for a high enough price. During hyperinflation, people won't sell tangible assets for fiat paper, no matter what the price.

Many silver dealers buy directly from miners. They don't bother with the COMEX, knowing it's a scam.

However, "You should buy silver, and take physical delivery, to bankrupt JP Morgan!" is invalid reasoning. You should buy silver and gold because it's the best way to protect your savings as the State collapses. The banksters will be bankrupted if people refuse to keep their savings in State paper, but that's a secondary benefit.

JP Morgan Chase is the custodian for the SLV ETF. If there's a silver default by JP Morgan and the COMEX, there's a good chance that SLV shares would also be worthless. That's the reason you take actual physical delivery, rather than buying paper or an ETF.

At the end of 2008, the "official" price of gold crashed. At the same time, dealers had no inventory. The COMEX price of gold was low, but if you wanted to buy 1 ounce rounds, nobody had any.

As the State financial system collapses, the discrepancy increases between the "official" price and the price at which you can actually buy physical.

The 2008 physical gold shortage occurred at a time of crashing "official" gold prices. Many people saw it as an opportunity to buy gold cheaply, but dealers ran out of inventory even while the "official" price was low.

Right now, many silver dealers have a shortage of 1 ounce rounds. This occurs at a time of skyrocketing silver prices. That's a contrast to the 2008 gold round shortage, which occurred at a time of crashing gold prices.

When I was in grad school, I calculated my effective hourly salary was $15/hr. If you calculate salary-per-hour in gold or silver, I'm paid much less now compared to when I was a grad student!

The FRN-denominated price of silver is skyrocketing. The gold/silver ratio has decreased from 65+ to under 50. Even though the price of silver is skyrocketing (both in terms of fiat and the gold/silver ratio), people are still buying. It is very interesting, that silver is skyrocketing and many dealers have no inventory. Is this a sign of the final hyperinflation and collapse of the dollar? Are more people realizing that fiat money and State paper investments are worthless?

One of the best ways to protest State abuse and bankster abuse is to buy gold/silver and take physical delivery. You protect yourself from theft via inflation. You make it harder for State parasites to have a stealth tax increase via inflation. If you keep your long-term savings in gold and silver, you avoid subsidizing the banksters via inflation. Gold and silver are the hardest investment for State parasites to confiscate.

Will Obama Set Another Record?

President Obama is on pace to set another dubious record. He will probably be the modern President who went the longest before pardoning someone. George Washington still has the record by a wide margin, but there weren't many/any Federal prisoners in 1789.

On Thanksigiving, President Obama made the usual PR stunt of pardoning two turkeys. Humans are not so lucky. Obama has pardoned zero people so far.

There are two types of errors in the "justice" system. There's freeing a criminal. There's wrongfully imprisoning someone. No politician wants the embarrassment of seeming "soft on crime".

That's a bold statement by the President. "There are zero people wrongfully imprisoned in the USA." That's what Obama means, when he hasn't pardoned anyone. "Failing to pardon someone who deserves it." is just as serious as pardoning someone who doesn't deserve it.

For example, Sholom Rubashkin deserves a pardon, or his sentence reduced/commuted to time served. However, a pardon would offend the people who lobbied for Rubashkin's imprisonment. A pardon would offend anti-"illegal immigration" activists. A pardon would offend large meatpackers. Rubashkin's efficient business threatened their meatpacking monopoly, so they lobbied for his arrest/raid/imprisonment.

I've mentioned before that Robert Kahre is wrongfully imprisoned. He invented a gold/silver income tax evasion scheme, exploiting the loophole that American Eagle coins have a legal tender value far less that their metal/melt value. It's economic terrorism, to jail a nonviolent tax resister.

As another example, Bradley Manning deserves a pardon, but won't get one. Did he leak "government secrets"? Did he leak evidence of criminal activity?

Typically Presidents wait until just before leaving office, to issue pardons. Everyone who's jailed has some influential group lobbying for his imprisonment. That makes a pardon politically risky.

It's ironic that Obama has pardoned more turkeys than humans. That's a bold statement. "There are zero people wrongfully imprisoned in the USA." Every jailed nonviolent offender is a political prisoner. All nonviolent offenders deserve pardons. That isn't going to happen.

Obama's "zero pardons" is just as significant a statement as any actual pardons. However, an actual pardon risks criticism. It's politically risky, to pardon someone. That's a common State parasite error. Eager to avoid explicit error A, State parasites instead do nothing.

The Presidential pardon is the last line of defense, for people wrongfully imprisoned. President Obama has pardoned zero people. That removes one of the checks and balances against abuse of State power.

Charles Rangel - Reprimand, Censure, or Wristslap

Charles Rangel is the former House chairman for the "taxation and extortion" committee. He was the subject of an ethics investigation.

The result was a "censure". A censure includes zero fine and zero other penalties. All a censure means is that the other Congressmen say "You did a naughty! Don't do it again!" A censure is considered slightly stricter than a reprimand. The main difference between a censure and a reprimand is that the defendant must be physically present when the censure is read.

The House could kick Charles Rangel out. However, that would require a 2/3 vote. "Getting kicked out of Congress" is a penalty reserved for heroes like Jim Traficant, who was jailed as a political prisoner. Congressman Traficant is one of the few Congressmen to publicly criticize the Federal Reserve.

Another penalty is that you can lose your seniority. Rangel did lose his committee chairmanship. He would have lost it now anyway, because the Republicans are going to be a majority.

Amusingly, Charles Rangel is contesting the penalty. He is arguing "I should get a reprimand and not a censure." That's silly, because the penalty for a censure is nothing.

The only time I saw Charles Rangel speak was when Jon Stewart was ridiculing him. See Charles Rangel makes me want to move to his district and run against him.

That's the real embarrassment. It isn't the silly censure penalty. Why was he reelected? The Republicans didn't put any effort into their candidate. Why didn't another Democrat challenge him in the primary?

That's one of the problems with the voting system. Incumbents get too big an advantage. Why would someone donate money/bribes to his opponent, when Rangel is a big favorite to be reelected? Even with this huge scandal, Rangel was easily reelected.

The embarrassment is not "Rangel got a censure!" The embarrassment is that he was reelected and nobody seriously challenged him.