Early SOFR/Treasury Option Roundup: Hedging Rising Chance of Rate Cut

SOFR and Treasury option trade looking pared on net overnight after better call flow in early London trade. Moderate put trades in Dec/short Dec SOFR and 10Y option reported just as underlying futures stage rally past Tuesday's post-CPI rally, TYZ3 back to mid-September levels. As such, projected rate cut in early 2024 gains momentum: December at 0bp at 5.333%, January 2024 cumulative -1bp (7.1bp pre-CPI) at 5.323%, March 2024 pricing in -33.9% chance of a rate cut (-16% pre-CPI) with cumulative at -9.5bp at 5.238%, May 2024 pricing in -51.8% chance of a rate cut with cumulative -22.4bp at 5.108%. Fed terminal has fallen to 5.335% in Dec'23.

• SOFR Options:
  • 2,500 0QZ3 95.25/95.43 put spds vs. 0QZ3 95.87/96.00 call spds
  • 3,000 SFRZ3 94.62/94.75 call spds ref 94.63
  • 3,000 0QZ3 94.87/95.12/95.25/95.37 put condors ref 95.71
  • 2,500 0QZ3 95.50/96.00 strangles ref 96.315
  • 6,200 SFRM4 95.25/95.50/95.75/96.00 call condors ref 95.06
  • 3,000 SFRF4 94.56/94.62/94.69 call flys ref 94.775
  • 5,000 0QH4 97.50/98.00 call spds ref 95.945
  • 2,500 SFRM4 95.25/95.62 call spds ref 95.035
• Treasury Options:
  • 3,000 TYZ3 110/110.5/111 call flys ref 109-06
  • 2,200 TYZ3 108.75/109.5 put spds 36 ref 109-05
  • 4,200 TYZ3 108.75 puts 2 over TYZ3 109.25/109.75 call spds
  • 8,900 TYZ3 107 puts, 1 ref 109-06
  • 9,900 FVZ3 107.25 calls, 2.5 ref 106-04
  • 2,000 TYF4 112.5 calls, 10 ref 109-09.5
  • 2,000 FVZ3 106.5 calls, 7 ref 105-31.75
  • 6,500 TYZ3 110 calls, 4 ref 108-28 to -28.5
  • 1,500 Wed/wkly TY 107.5/108/108.5 put trees, 9 ref 108-28.5