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Late SOFR/Treasury Option Roundup: Put Buys Peg Fed Rate Cut Reticence

US TSYS

SOFR and Treasury options continued to rotate around low-delta put, put skew plays Wednesday as well as some chunky vol sales (over 20k SFRZ4 94.75/95.25 strangles) in the lead-up to the January FOMC Minutes release. Policymakers expressed more concern with cutting rates too soon than too late.

  • The rise in yields post-minutes saw projected rate cut pricing consolidate from this morning's levels: March 2024 chance of 25bp rate cut currently -6.8% vs. -9.6% earlier w/ cumulative of -1.7bp at 5.312%; May 2024 at -26.6% vs. -30.0% w/ cumulative -8.3bp at 5.245%; June 2024 -60.5% vs. -64.9% w/ cumulative cut -23.5bp at 5.094%. Fed terminal at 5.33% in Feb'24
  • SOFR Options:
    • Block, 6,000 SFRZ4 94.75/2QZ4 95.50 3x2 put spds. 2.0 net
    • Block, +5,000 SFRM4 94.62/94.75/94.87/95.00 put condors, 3.75 ref 94.945
    • -22,000 SFRZ4 94.75/95.25 strangles, 69.0 vs. 95.585/0.44%
    • Block, 5,000 SFRH5 94.62/95.12 2x1 put spds, 1.0 2-legs over
    • -10,000 SFRM4 96.00/97.00 call spds 1.5
    • -16,000 SFRH5 94.62/95.12 2x1 put spds, .25 ref 95.92
    • +12,000 0QH4 95.93/96.43 1x2 call spds, 9.75 vs. 95.92/0.24%
    • 3,500 SFRZ4 98.00/98.25/98.50/99.00 call condors ref 95.64
    • 3,000 SFRK4 95.00/95.12 put spds
    • 2,000 SFRK4 94.87/95.00/95.12 put trees ref 98.98
    • Block 8,000 SFRM4 94.81/94.93/95.00/95.12 call condors, 3.25 ref 94.98
    • 7,000 SFRH4 94.75/94.81/94.87 put flys ref 94.7155
    • -4,000 SFRU4 95.00/95.12 put spds, 5.0 ref 95.315
    • 4,000 SFRM4 95.00 puts ref 94.98
    • +2,500 SFRM4 94.87/94.93/95.00/95.06 put condors, 1.25
    • Block, +4,500 SFRM4 94.62/94.87/95.00/95.12 broken put condors, 0.75 net vs. 94.985/0.12%
    • 1,500 SFRH4 97.50/98.25/99.00 call flys ref 94.7125
  • Treasury Options:
    • -10,000 USK4 115/120 call over risk reversals, 7 vs. 117-26
    • 2,300 TYK4 108/110 2x1 put spreads 13
    • +4,750 TYH4 111 combo, 62 net/put over vs. 110-01/100%
    • -3,000 TYH4 108.75/109.5/110.5 broken put trees, 32 vs. 109-30.5/0.50%
    • +2,500 TYJ4 107.5/110 put spds vs. TYJ4 113 calls, 22 net ref 110-15.5
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