Options Jive

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Trading Short-Term Yields with Eurodollars

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Eurodollar futures gauge the interest rate on interbank lending with a 3-month timeframe.

We trade Eurodollar futures to bet on the future action of the Fed as the interest rates they directly affect are short-term interest rates, and it’s easy to find the yield.

Using the front-month (/GEU8) yield as our current yield and knowing how many chances the Fed has to hike will influence our trade idea. This greater uncertainty as we go out in time and experience more meetings has been seen in the actual volatility of the further out expirations.

Eurodollars offer diversity in a portfolio of stocks and bonds by giving us exposure to short-term interest rates. Additionally, they are smaller and less volatile products than bonds, or the ETF equivalent, TLT.

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