Betting against the market with $25 million! A mysterious options trader bets that the Federal Reserve will not cut interest rates this year

According to Zhitong Finance APP, a bet against the Federal Reserve not cutting interest rates this year is gaining traction in the options market. This position takes the form of put options—holders have the right to sell a specific price of the December 2025 secured overnight financing rate futures contract within a specified time window. This futures contract is closely related to the rate set by the Federal Reserve. The strike price is 95.6875, below the current option price—indicating an expectation of nearly three 25 basis point cuts by the end of the year. As the option price approaches the strike price, the value of the option will increase, which would occur if further rate cuts are no longer anticipated.

The open contracts for this option (the number of contracts held by traders) exceed 275,000. Although this pales in comparison to the contract levels generally expected in the market, it has surged in recent weeks, gaining momentum since the Federal Reserve's last meeting. The number of individual traders participating in the trades is unclear, but according to traders familiar with the position and data compiled by Bloomberg, an estimated $25 million has been spent on about 250,000 contracts since March.

Data from the Chicago Mercantile Exchange Group (CME Group), which operates SOFR futures and options trading, shows that open contracts increased again on Thursday due to a drop in SOFR futures prices. The sell-off reflects a waning confidence in the Federal Reserve cutting rates this year, based on the strong performance of the U.S. economy and stock market.

The value of this bet has increased since the Federal Reserve announced on Wednesday its latest policy meeting decision to keep the federal funds rate target range unchanged at 4.25%-4.5%. Federal Reserve Chairman Jerome Powell stated during the press conference discussing this decision that the current level of interest rates is appropriate for the current economic conditions and is unlikely to change before a significant shift occurs.

On Thursday, when U.S. President Trump suggested that people should buy U.S. stocks based on the progress of a trade agreement with the UK, this sentiment further boosted the U.S. stock market. However, this situation may change after weekend trade negotiations with China. Trump proposed an 80% tariff on Chinese imports on Friday, while those familiar with the negotiation preparations indicated that the U.S. side has set a goal of reducing tariffs to below 60% as a first step.

If the outcome of the negotiations alters the Federal Reserve's policy outlook for the remainder of the year, the value of this position may face setbacks or further increases