A 70-point collapse in the third-quarter GDP contract

The 2.5% threshold prices at 7% while the 2.0% and 3.5% rungs hold near 84% and 57%.

In one line: Third-quarter growth beats 2.5% in the advance estimate. The 7% price on that rung looks wrong; the 71% price on the 3.0% rung is the better guide.

The Kalshi contract on whether third-quarter real GDP grows faster than 2.5% fell 70 points in the last 24 hours, to 7%. On 23 Sep it touched its seven-day high of 78%. Over the seven days it is down 61 points, from 68% on 17 Sep.

The other contracts in the same event set a logical floor. The contracts form a ladder, one for each growth threshold, and each pays if the Bureau of Economic Analysis (BEA) advance estimate clears its bar. Traders price growth above 0.0% at 98%, above 2.0% at 84%, above 3.0% at 71%, above 3.5% at 57% and above 4.0% at 28%.

The 2.5% price breaks that order. Any quarter that grows faster than 3.0% also grows faster than 2.5%, so the 2.5% contract can never fairly trade below the 3.0% contract. If traders had cut their growth forecast, the 3.0% and 3.5% rungs would have fallen with it. They sit at 71% and 57%. The collapse belongs to one rung, and the ladder around it says the rung looks mispriced. Read together, the other contracts put the chance of growth above 2.5% between 71% and 84%.

The call: the BEA advance estimate will show third-quarter growth above 2.5%, an outcome this contract prices at 7%. The contract resolves on 30 October, in 36 days, and the advance estimate settles it. If that estimate shows growth of 2.5% or less, this reading is wrong.