Gambling on Economic Data

The Chicago Mercantile Exchange (CME) has created an auction market in partnership with Goldman Sachs for economic data; this represents a formalization of an over-the-counter market in existence for several years. While the CME clears and therefore guarantees the contracts, they are not futures contracts in any sense and certainly are not suitable for most investors. You must have $5 million in liquid assets or $10 million under management to participate in these auctions. But even if you do not trade them, the information they produce can be of value.

Auctions are offered on U.S. retail sales ex-autos, the ISM's manufacturing purchasing manager index, core CPI, the eurozone's harmonized index of consumer prices ex-tobacco, U.S. initial jobs claims, U.S. GDP, the U.S. international trade balance and the subject of the illustration below, NFP.

NFP Auction

The auctions actually are for digital calls and puts at strikes that are spaced 25,000 jobs apart; the most recent auction's strike range extended from a strike of zero to 250,000. Unlike regular or "vanilla" options, whose payout is the difference between the asset price and the strike price, digital options have a fixed payout if the asset price -- here, the economic statistic -- exceeds (for a call option) or falls below (for a put option) the strike price at expiration.

The prices of these digital options are used to construct prices for vanilla puts and calls. The payouts for these vanilla options are capped by the high strike for the call and by the low strike for the put.