Option Menu | Trade Ideas for Your Rates View: US Rates Strategy | North America

Research evidence excerpt

Option Menu | Trade Ideas for Your Rates View: US Rates Strategy | North America

Idea

July 20, 2026 06:32 PM GMT

Morgan Stanley & Co. LLCMUS Rates Strategy | North America Shaun Zhou

Strategist

Option Menu | Trade Ideas for Shaun.Zhou@morganstanley.comMatthew Hornbach +1 212 761-3348

Matthew.Hornbach@morganstanley.com +1 212 761-1837

Your Rates View Martin W Tobias, CFA

Martin.Tobias@morganstanley.com +1 212 761-6076

Investors often have a directional view on rates, but face a trade Aryaman Singh

off between accepting unwanted risks or paying for option StrategistAryaman@morganstanley.com +1 212 761-1993

outcomes they do not expect. We scan the USD rates vol Eli P Carter

surface to identify our preferred expressions for higher rates, StrategistEli.Carter@morganstanley.com +1 212 761-4703

lower rates, steeper curves, and flatter curves.

Key Takeaways

To balance unwanted risk and option cost, we identify preferred option

expressions based on prevailing market drivers and volatility pricing.

Higher rates: 3m30y payer spread. Attractive entry level with low ATM volatility

and rich payer skew.

Lower rates: 6m5y low strike receiver. Cheap receiver skew and sufficient time

for macro data to challenge Fed hike pricing.

Steepener: 3m 5s30s curve cap. Captures multiple steepening scenarios while

limiting downside to the premium paid.

Flattener: 1m 2s5s bear flattener. Targets a flatter curve only in a higher rate

scenario with zero upfront premium.

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