Rate cut trades
January 15, 2024
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Heavy SOFR options trade Friday. Below are some selected plays.
New low in SFRH4/SFRH5 one-year calendar at -163.5 bps. Every spread from SFRU4 forward made new highs. Rolling red/green SOFR pack spread was pretty much between -40 and -55 from July to the Sept expiration, and between -20 and -35 from early Nov to Dec expiration; it settled Friday just above zero, the first positive settle since early 2022.
–SOFR options trades Friday:
+80k SFRH4 9525.0/9537.5/9543.75/9556.25 c condor for 0.75
+20k SFRH4 9537.5/9543.75cs 0.5
+20k SFRG4 9500/9506.25cs 2.25
+30k SFRG4 9512.5/9525/9537.5c fly for 1.0
-50k SFRH4 9487.5/9500/9512.5/9525 call condor vs 9462.5p sold at 5.5 (exit)
these trades reflect the idea that the Fed will be forced into early rate cuts. SFRH4 settled 9501. Recall first ease in 2007 was 50 bps.
SFRU4 settled above the 9600 strike at 9602.5. Recall in several contract months including U4 there were large buyers of 9600/9700 c spreads for 8 to 13 bps. Settled 39.75/13.0 or 26.75.
+8k SFRZ4 9650/9700/9750c fly for 6.0 (settled 5.5 ref 9637.5). This trade targets 3% by year end. The Fed’s SEP projects an end-of-year FF target at 4.6%.
+250k 2/14/24 expiry VIX 17 calls ~0.79. (underlying 14.46).
