### POV: FED FUNDS OPTIONS: A dealer acct...>

OPTIONS: ### POV: FED FUNDS OPTIONS: A dealer acct buying insurance on NO ACTION

from Fed next week:

* +15,000 FFQ 97.81 puts from 1.75 to 1.5. Several things to note: 

- Opening trade as FF options come alive, total open interest is only 1,051

(only 500 July calls and 551 puts between July and August). FFQ 97.75 puts also

trade 550 on screen at 1.0.

- Note: While it's likely to be the first rate cut since December 2008 next

week, a 25bp rate cut has remained fully priced in for weeks. Meanwhile the

chances of a more significant 50bp cut remain stubborn to decline (CME FedWatch

model assigns 19.4% probability of a drop in the target rate to 1.75-2.00% next

week.

- Why Fed funds options now after months if not years of inactivity? "If we are

ever going to be able to trade options on SOFR the way it is designed, the

market will have to prove that someone wants to trade FF options," one long time

rates trader said, noting the shortcomings in the design of the SOFR contracts

to match FF. "No one wants to trade options on a final settle. Pretty binary."