Mystery Trader Bets on "Fed Rate Cut Hurdle," SOFR Options Trade Nets Around $10 Million Profit

**March 17** A short-term rate option trade betting the Federal Reserve will keep interest rates high long-term closed out for a roughly $10 million profit this week, ahead of the central bank’s policy meeting. Initiated in January, the trade was tied to Secured Overnight Financing Rate (SOFR)-linked options, with its core wager that U.S. interest rates would exceed market consensus by mid-2028. Chicago Mercantile Exchange (CME) open interest data showed selling activity in the related options last Friday, confirming the profitable position closure. The trade remains anonymous—no specific institution or individual has been identified yet. Market analysts note the trade was positioned before the Middle East conflict escalated. Recent crude oil price surges (to their highest level since 2022) have reignited inflation concerns, prompting traders to scale back Fed rate-cut expectations. This pushed SOFR futures lower and lifted corresponding put option prices, driving the profit. Current market pricing calls for just one 25-basis-point rate cut by year-end—sharply down from February’s expectation of at least two cuts. Forward rate expectations have also risen: SOFR futures expiring in June 2028 are up ~30 basis points from early March. The position was closed ahead of this week’s Fed meeting, where markets widely expect no policy rate change. Investors will focus on Chair Jerome Powell’s press conference to gauge how the Fed will balance inflationary pressure from higher oil prices with signs of labor market softness.