Late SOFR/Treasury Option Roundup: Hedging for Less Rate Cuts in 2024

Second day of heavy SOFR and Treasury option volumes, mostly targeting downside puts and put structures as accts hold to the post-CPI mindset of significantly delayed rate cuts as the Fed waits for sign inflation is at bay.

• Notable SOFR call condor spread (highlighted), similarly structured: Given where underlying futures are, it appeared the spread initiator looked for rate cut pricing in the fall of 2024 to wane vs. positioning for rate cut pricing in the fall of 2025 to increase.
• Projected rate cut pricing looks steady by mid-year (Jun fully priced): March 2024 chance of 25bp rate cut currently -14.4% w/ cumulative of -3.6bp at 5.293%; May 2024 at -31.2% w/ cumulative -11.4bp at 5.215%; June 2024 -68.5% w/ cumulative cut -28.5bp at 5.043%. Fed terminal at 5.3275% in Feb'24
• SOFR Options:
  • Block -20,000 SFRU4 95.00/95.50/95.75/96.25 call condors ref 95.345 vs. +20,000 SFRM4 96.25/97.00/98.50/99.25 call condors ref 96.18, Jun25 bought over 5.0-5.5 on splits
  • Block, 20,000 SFRH4 94.93/95.37 call spds, 0.5 ref 94.73
  • Block, +20,000 SRJ4 94.37/94.75/94.87put flys 2x3x1 +.75
  • Block, -10,000 SFRM5 96.25/97.00/98.50/98.75 broken call condors, 23.75 ref 96.21
  • Block 10,000 SFRM5 96.25/97.25 call spds, 31.25 splits ref 96.20
  • +8,000 SRH4 94.68/94.81/94.87/94.93 put condor 3 ref 94.74
  • -10,000 SRM4 95.25/95.50/95.75 call flys, 1.25 ref 95.04
  • +10,000 SRU4 94.75/94.87 p spds vs. 95.415/0.10% with SRZ4 94.75/94.87 put spds, 5.0 total
• Treasury Options: Note, March options expire next week Friday
  • +22,500 TYJ4 109.5 puts, 28 (adds to +50k earlier at 30)
  • +15,000 TYJ4 108.5/110 put over risk reversals 22 ref 110-10.5 (+50,000 TYJ4 108/112 put over risk reversals 3 ref 110-00 yesterday)
  • +50,000 FVJ4 106.5 puts 22 ref 107-10.75
  • 8,000 USH4 116/117 put spds 4 ref 119-13
  • +50,000 TYJ4 109.5 puts, 30 ref 110-24.5 (total volume over 65k)