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Traders Are Piling Into Hawkish Fed Bets, But They’re for 2023

  • Rush into mid-curve options priced off rates further out
  • Volumes surge as Biden prepares plans for stimulus package

The past week has seen a surge in option bets which pay off as more Federal Reserve hikes are priced in, though all of them are targeted at rates two or three years from now.

Given the Fed’s mantra of lower rates for longer, traders don’t expect hikes this year and are unwilling to pay up for expensive options with long-dated expiries. The solution: a rush into so-called mid-curve options with short-term expiries but are priced off rates a couple of years out.