Option traders are betting that the Bank of England will cut interest rates sharply despite inflation, in hopes of earning over 1,000% return.

Some traders in the UK options market are betting that if the Bank of England ignores the inflation rate at an 18-month high and cuts interest rates by more than what is reflected in the pricing, they will receive a return of over 1000%. The traders bought options linked to the average overnight index rate for the pound on Thursday, initiating the aforementioned bet. The initial investment for this bet is around 1.5 million pounds, and if the base rate drops to 3.5% within the year, it will bring nearly 20 million pounds in return. The reason why this bet can bring unusually high returns is because it goes against the current market conditions to some extent. This week, after inflation and wage growth data in the UK were stronger than expected, market expectations for a rate cut by the central bank have cooled off.