Tomorrow is a busy day on the stateside economic calendar with economic releases that coincide with several forecast contract expirations. We have the Producer Price Index (PPI), Unemployment Claims and yesterday’s featured ForecastEx pick of the week, which is Retail Sales. The prints are all scheduled for publication at 8:30 a.m. ET. Then 45 minutes later at 9:15 a.m. ET, we have Industrial Production. I believe there are compelling trade opportunities on all of these, and I’ll detail my preferred positioning below:
Producer Price Index Opportunity
Starting with the PPI, the consensus estimate is 2.5%, but I’m at 2.4%, as I think declining food and crude oil costs will lead to a downside miss. In consideration of my projection and outlook, I like buying the “No” answer for the contract asking if the PPI will exceed 2.6%, priced at $0.62 and the “Yes” answers at the 2.2%, 2%, 1.5% and 1% thresholds for $0.87, $0.94, $0.95 and $0.96. The combination trade costs a total of $4.34 and delivers $5.00 on a number as low as 2.3% or as high as 2.6%, offering some wiggle room to the investor in case of a beat or a miss.
Unemployment Claims Create Another Opportunity
Turning to initial unemployment claims, I like the same trade as last week. Claims have been trending higher with the 4-week moving average above 220,000 for 11 consecutive weeks. Meanwhile, forecasters expect next week to be the 12th straight week above that level, and they are anticipating a headline figure of 229,000. Against this backdrop, initial claims have failed to exceed 260,000 since October of 2021. I think for this print there’s a higher chance of an upside beat than a downside miss since my estimate is at 233,000. In light of this dynamic, I like buying the “Yes” answers to contracts asking if initial claims will exceed the 220,000, 210,000 and 200,000 thresholds for $0.80, $0.95 and $0.96 and the “No” answer at 260,000 for $0.93. The total cost of the combination trade is $3.64 and delivers $4.00 back to the investor on a number as low as 221,000 or as high as 260,000.
Industrial Production Is a Potential Homerun
Tomorrow’s industrial production print is expected to reflect a 1.7% year-over-year increase by the consensus, but there’s quite a mispricing going on in the associated forecast contracts. My projection is slightly higher, meanwhile, at 1.9%. Indeed, the “Yes” below the aforementioned estimates at 1.5% is offered at just $0.27. In consideration of the mismatch, I like buying the “Yes” answers at the 1.5%, 1%, 0.5%, 0% and -0.5% thresholds for $0.27, $0.56, $0.73, $0.88 and $0.93 as well as the “No” answers at 2.5%, 3%, 3.5% and 4% for $0.92, $0.93, $0.94 and $0.96. The total cost of the combination trade is $7.12 and pays back $9.00 to investors on a number as low as 1.6% or as high as 2.5%. The combo would still deliver $8.00 to the investors on a number as low as 1.1% or as high as 3%. The path to a loss on this trade is especially narrow, requiring a huge miss or a significant beat.
Source for Images: ForecastEx
Note: Prices are highest bids as of the morning of May 14, 2025. Red circles around the thresholds were inserted by J. Torres to highlight his preferred “Yes” and “No” answers throughout different thresholds.
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