The 11 contracts for the CME Case Shiller futures are quoted with different bid/ask spreads. The reasons for the differences range from time to expiration, time elapsed since last trade, whether a trader has an “axe” (often measured by open interest), volatility of the index (particularly for the ten regional indices), absolute index level (e.g. WDC is ~2x the price of the LAV index), and concerns about possible index revisions.
This table shows recent bid/ask spread differences for all 121 contracts using price on the top, and percent versus index bid on the bottom.
Looking across rows (expirations) the two tightest bid/ask spreads are highlighted in green, while the two widest are shown in red.
As noted above, since the WDC contract has the highest index value, it tends to have the widest bid/ask point spreads. However, when bid/ask is measured on a percent of bid WDC only shows up once as a “top 2 widest”. On the other hand, the LAV contract, which never was listed as one of the wider bid/ask point spreads, shows up as the most frequent “top 2 widest” markets when measured on a percentage basis.
The two tables show that the bid/ask spreads tend to expand with time to expiration (consistent with risk increasing with the square root of time).
I would suggest that traders use these tables for two reasons:
- To see where the tightest markets are, in case they’re interested in trading. So, for example, the CHI and NYM markets are the tightest points-spread markets when this spreadsheet was created. LAX joins CHI and NYM as the tightest markets when expressed in percentage terms. The tightest regional markets tend to change over time. This past winter DEN was one of the tightest markets for long periods, and there have been < 1 point markets in LAV over the last few months.
- To see where there’s room to bring in the bid/ask spreads. That is, these tend to be regions (or expirations) where there’s been infrequent trading, or a lack of interest. MIA and SDG usually top this list as there has not been a trade in Miami in a very long time, and (I expect) most of the interest in the California markets has focused on LAX and SFR.
Check the CME websites (links provided on the right side of my home page) or contact me (johnhdolan@homepricefutures.com), to find out what’s “hot” and what’s not.