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

Jinse Finance reported that on December 4, the SOFR options market continued to see a recent trend: traders are focusing on various structured trades for the first two quarters of next year to hedge against multiple rate cuts by the Federal Reserve, and even the possibility of a single 50 basis point rate cut. Fed-dated OIS (Overnight Index Swaps) currently price the effective rate for the June meeting next year at about 3.30%, which is approximately 60 basis points lower than the current effective rate set by the Federal Reserve. The ongoing theme over the past few trading days has been buying upside structures in SOFR options for January, March, and June, aiming to hedge against a greater rate cut premium than what is currently priced in by the swap market.