This morning’s preliminary read on the University of Michigan’s Consumer Sentiment Index was the second lowest of all time at 50.8. Meanwhile, forecast contracts based on the final reading, scheduled for release in 14 days on May 30, offer strong directional risk-reward profiles in my opinion. In light of the statistical history of the difference between initial and final reads, the greatest positive revision going back to October 2015 has been 3.1, while the most negative occurred in the depths of COVID, as March 2020’s figure was downgraded by 6.8. Moreover, the average and median revisions since then in absolute terms are 0.97 and 0.75. In consideration of the dynamics, I like a directional combination trade against this backdrop consistent with the final number failing to exceed 53, 55, 57, 59 and 61. Current prices are ranging from $0.16 to $0.95. The total cost of the “No” answers across the specified thresholds is $3.04 and would deliver $5.00 back to investors on a number as high as 53, requiring an upgrade of 2.2, which is a tall bar at over double the average. Breaking the record of the highest revision ever with an upgrade of 4.3 during the examined time period would be required to reach 55.1, and even then, the investor would only lose $0.04, because he/she would collect $3.00 from the other thresholds.
Source for Images: ForecastEx
Note: Prices are highest bids as of the morning of May 15, 2025.Red circles around the thresholds were inserted by J. Torres to highlight his preferred “No” answers throughout different thresholds.
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