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SOFR Options Update: Dueling Policy Hedges Ahead Key Employ Data

STIR

Dueling rate move hedges for early 2024 at play below: larger call flys at the moment are targeting the return of projected rate cuts seen in the latter half of December (where markets projected the first rate cut since March 2020 to occur this March or May). On the flipside, put condor buys are hedging for the continued decline in projected rate cut chances underscored after this morning's higher than expected ADP private jobs gain and lower than expected weekly claims. A lot hangs on Friday's December employment report (as well as next week's CPI and PPI inflation measures) to see which hedge is correct.

    • over +50,000 SFRH4 94.87/95.00/95.12 call flys, 2.75-3.0 ref 94.93 to -.925
    • +5,000 SFRJ4 95.25/95.50/95.75 call flys, 4.5 position add, appr 40k total
    • +30,000 SFRH4 94.75/94.81/94.87/94.93 put condors, 1.0
    • +8,000 SFRJ4 94.87/95.25/95.37 put trees, 3.25
  • Projected rate cuts for early 2024 continue to cool after surging higher post Dec'23 FOMC: January 2024 cumulative -1.6bp at 5.313%, March 2024 chance of rate cut -63% vs. 66.8% this morning (-84.3% last Friday) w/ cumulative of -17.4bp at 5.155%, May 2024 chance of cut -83.7% vs. -86% this morning, cumulative -38.3bp at 4.946%. Fed terminal at 5.33% in Jan'24.
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