To The Moon

Based on the U.S. Producer Price Index (PPI) for August 2025, which was released on September 10, 2025, here are the key signals and their implications:

Overall PPI Decline: The headline PPI for final demand declined by 0.1% on a month-over-month (MoM) basis. This was an unexpected and significant shift, as the consensus forecast was for a 0.3% increase. It's the first decline in four months.

Core PPI Decline: The "Core PPI," which excludes the volatile food and energy sectors, also fell by 0.1% MoM, missing the forecast of a 0.3% increase. This is a very important signal because it suggests that price pressures are easing across a broader range of goods and services, not just due to fluctuations in food and energy prices.

Disinflationary Signal: The unexpected declines in both the headline and core PPI indicate a notable cooling of wholesale inflation. This is a positive signal for the Federal Reserve and for consumers.

Implications for the Federal Reserve: The Fed's primary goals are to maintain price stability and maximum employment. The falling PPI data provides strong evidence that inflationary pressures are easing. This could give the Fed more flexibility and may support the case for an interest rate cut in the near future, which markets have been anticipating.

We can see that the probability for a September rate cut have gone from 88.9% one month ago to 92.0% now.

Leading Indicator for CPI: The PPI is often considered a leading indicator for the Consumer Price Index (CPI), which measures inflation at the consumer level. A decrease in the prices producers receive could eventually lead to lower prices for consumers, as businesses may pass on their reduced costs. However, it is important to note that the two indexes do not always move in perfect lockstep due to factors like distribution costs and profit margins.

Market Reactions: The softer-than-expected PPI data is generally seen as a positive for the US Dollar (USD), as it lessens the pressure on the Fed to maintain high interest rates. It can also be bullish for stocks, as a potential rate cut would make borrowing cheaper for businesses and could stimulate economic growth.

What If Both PPI (Producer Price Index) and CPI (Consumer Price Index) Declining

When both PPI (Producer Price Index) and CPI (Consumer Price Index) are declining, it signals disinflation—a cooling of price pressures. This environment often leads to lower interest rate expectations, improved real purchasing power, and a shift in investor preference toward rate-sensitive and consumer-driven sectors. Here's how to play it:

Stocks That Benefit from Falling Inflation

These sectors and names tend to outperform when inflation cools and rate cuts are anticipated:

Rate-Sensitive Sectors

• Homebuilders & Real Estate: Lower rates boost mortgage affordability.

• Examples: NVR Inc. (NVR), $Home Depot(HD)$, Lowe’s (LOW), SPDR Homebuilders ETF (XHB)

Consumer Discretionary

• Consumers regain spending power, benefiting retailers and e-commerce.

• Examples: $Amazon.com(AMZN)$, Ross Stores (ROST), Kroger (KR), The Children’s Place (PLCE)

Packaging & Industrials

• Input cost relief improves margins.

• Examples: Ball Corp. (BALL), EchoStar (SATS) – especially with strategic deals like the SpaceX spectrum sale

Tech & AI Infrastructure

• Lower rates support high-multiple growth names.

• Examples: AppLovin (APP), $Robinhood(HOOD)$, $Palantir Technologies Inc.(PLTR)$, $NVIDIA(NVDA)$ – though some are still under pressure

Option Strategies for Disinflation Plays

Here is how sophisticated investors might express views or hedge in this regime:

1. Bull Call Spread (Directional Play)

• Buy a call at a lower strike, sell a call at a higher strike.

• Ideal for stocks like AMZN or HD if you expect a moderate upside.

2. Put Credit Spread (Income + Bullish Bias)

• Sell a put at a higher strike, buy a put at a lower strike.

• Works well on retail names like ROST or KR with strong support levels.

3. Call Options on Rate-Sensitive ETFs

• Target ETFs like XHB (Homebuilders) or XRT (Retail).

• Express a macro view on rate cuts and consumer strength.

4. Straddle or Strangle on CPI/PPI-sensitive stocks

• For names like PLTR or NVDA that may react sharply to macro prints.

• Capture volatility around inflation data releases.

As I am holding PLTR and NVDA for long term, I am planning to do a Long Strangle to capture the volatility.

5. Protective Puts (Hedge Growth Exposure)

• If holding high-beta tech, use puts to hedge downside in case inflation surprises to the upside.

Option Setup (Long Strangle) For Palantir (PLTR)

A Long Strangle is a volatility play—ideal when you expect a big move in either direction, but you're unsure which way. With Palantir (PLTR), given its sensitivity to macro data, AI narratives, and defense contracts, this setup could be compelling around CPI prints, earnings, or geopolitical catalysts.

Long Strangle Setup for PLTR (Expiration: 10 October 2025)

Here is how I would structure the trade with strikes that are roughly 10–12% out-of-the-money on each side to balance cost and convexity.

Total Premium Paid: ~$16.20 Breakeven Points:

• Upside: $180 + $16.20 = $196.20

• Downside: $150 − $16.20 = $133.80

Strategic Context

• Volatility Play: PLTR has shown wide swings—recently from $190 down to $146. You're positioned to benefit from a breakout in either direction.

• Catalyst Timing: October 10 aligns with CPI release and potential earnings volatility. Perfect storm setup.

• Theta Risk: If PLTR trades flat near $166, both legs decay. You could mitigate this by rolling or converting to spreads later.

• Alternative: If you want tighter breakevens, consider narrowing the strike gap (e.g., $155/$175) or shifting to a Straddle if you expect a move but not sure when.

Summary

The August 2025 PPI report sends a clear signal that wholesale inflation is moderating faster than expected. This provides a strong data point for those who believe that the Fed's past monetary policy actions are working to bring down inflation, and it may increase the likelihood of future interest rate cuts.

Declining inflation, signaled by a decrease in the Producer Price Index (PPI) and a potential drop in the Consumer Price Index (CPI), can have a significant impact on the stock market. Here's a look at some stocks and sectors that might benefit, along with potential option strategies for investors.

Appreciate if you could share your thoughts in the comment section whether you think PPI and CPI decline have created a higher probability for rate cut and also investors could use option strategies to take advantage.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.