Rare SOFR Trade Highlights a Key Glitch in Libor’s Transition

A unique trade in options tied to the Secured Overnight Financing Rate turned heads in the U.S. rates options market on Tuesday, showing how far the contracts are from linking to Libor’s replacement.

The short call position was in the December three-month SOFR options, referenced by futures tied to the heir to Libor, which is the current benchmark for the popular eurodollar options. The trade size was just 5,000 contracts. But it still was more than double the outstanding positions held across all three-month SOFR options, a miserly 7,772 contracts as of Tuesday’s close.

It’s a clear sign that while ...