Mystery Trader Bets on "Fed Rate Cut Hurdle," SOFR Options Trade Nets Around $10 Million Profit
BlockBeats News, March 17th, a bet on "Fed to Maintain High Rates Long-Term" short-term rate option trade recently made a profit of about $10 million and was closed out before the Fed interest rate meeting. The trade was initiated in January this year, linked to Secured Overnight Financing Rate (SOFR)-related options, with the core bet being that the U.S. interest rate level will be higher than the market's general expectation by mid-2028.
According to the open interest data published by the Chicago Mercantile Exchange Group (CME), there was selling activity in the related options last Friday, indicating that the position had been profitably closed out recently. As such interest rate derivative trades are usually conducted anonymously, the specific trading institution or individual cannot be confirmed at this time.
Market analysts stated that this trade had been positioned before the Middle East conflict erupted. With the recent surge in crude oil prices to the highest level since 2022, concerns about inflation have heated up again, prompting traders to lower their expectations of a Fed rate cut, causing SOFR futures to fall and driving up the prices of corresponding put options, turning the position into a profit.
Currently, the market expects the Fed to only cut rates by about 25 basis points by the end of this year, much lower than the market's pricing of at least two rate cuts at the end of February. At the same time, forward rate expectations have also been revised upward, with, for example, SOFR futures rates expiring in June 2028 up about 30 basis points from early March.
The position was closed out earlier this week before the Fed interest rate decision. The general market expectation is that this meeting will not adjust the policy rate, but investors will focus on Jerome Powell's press conference to assess how the Fed will balance the inflationary pressure from rising oil prices with signs of weakness in the labor market.
