Traders hedge the risk of multiple Fed rate cuts through mid-2026 with SOFR options.

Jinse Finance reported that on December 4, the SOFR options market continued to exhibit a recent theme: traders are focusing on various structured trades for the first two quarters of next year to hedge against the possibility of multiple Fed rate cuts, or even a single 50 basis point rate cut. Fed-dated overnight index swaps (OIS) are currently pricing the effective rate for the June meeting next year at around 3.30%, about 60 basis points lower than the Fed’s current effective rate. The ongoing theme over the past few trading days has been buying upside structures in January, March, and June SOFR options, aiming to hedge against more rate cut premium than what is currently priced in by the swaps market.