US option market now betting the Fed won’t cut rates at all in 2025

Traders in the US options market are throwing serious money at one idea: that the Fed is going to keep rates frozen through 2025. The bet is clear and loud. It’s tied to a put option on the December 2025 Secured Overnight Financing Rate (SOFR) futures contract.

The strike price—95.6875—sits lower than the current SOFR futures price, which still factors in three quarter-point cuts before year-end. Whoever’s buying these contracts is calling bullshit on that prediction.

This isn’t some quiet backroom play. It’s a full-on offensive. The trade would pay off only if the futures price sinks closer to that 95.6875 mark, meaning expectations for rate cuts would need to die completely. 

As of now, open interest in the trade is over 275,000 contracts, and the size has exploded just over the last few weeks. It picked up speed right after the Fed’s latest policy meeting—the one where they held their ground and left rates at 4.25% to 4.5%.

Only one quote was needed from that session: Jerome Powell, the Fed Chair, said the current level is “appropriate for current economic conditions” and won’t move unless the conditions do.

More traders enter as futures fall and open interest spikes

More firepower got added after Wednesday. On Thursday, SOFR futures slid lower again, and open interest in the 95.6875 put grew even more. That followed a market reaction to better-than-expected economic data and a rising stock market.

Traders started backing off their previous belief that the Fed would step in with cuts. That belief just keeps fading. And as it fades, this option gains value.

Since March, traders have spent around $25 million to buy nearly 250,000 of these contracts, Bloomberg reported. The number of individual traders in the position is unknown, but the volume says everything. They’re betting the Fed stays exactly where it is.

This trade also fed off a comment made by President Donald Trump on Thursday. Speaking at the White House, Trump told Americans to buy stocks based on upcoming progress with the UK trade deal. The stock market jumped immediately.

Optimism kicked in. But that could get tested fast, because Trump also mentioned on Friday that he might slap an 80% tariff on Chinese imports. That comes just ahead of weekend negotiations with Beijing

People involved in the setup reportedly say the US might instead push for something less severe, like getting tariffs below 60% to start. 

But any change there could swing how the Fed reacts for the rest of the year. If trade talks crash and burn, this massive put bet might lose steam—or it might go even deeper into the money.

WisdomTree sees no reason for Fed cuts

“Unless something bad happens between now and June, it means the Fed doesn’t need to go,” said Kevin Flanagan, the head of fixed income strategy at WisdomTree. Kevin pointed to vulnerability in short-term yields, especially since the Fed’s March projection still included two cuts.

Meanwhile, battle lines are forming in the Treasury futures market. On one side, asset managers are piling into long positions, betting that yields will fall. For the last eight straight weeks, they’ve increased their exposure by the equivalent of 1.3 million 10-year note futures.

On the other side, hedge funds are stacking short positions, adding around 1 million contracts to their total over just five weeks.

The largest change last week came in five-year notes. Asset managers extended their net long by $7.4 million per DV01, while hedge funds pushed their net short up $7.7 million per DV01. That’s not a quiet disagreement. That’s a full-scale war between bulls and bears on how far the Fed is going to hold out.

So far, the Fed isn’t blinking. Neither are the people betting it won’t.

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