(Murphy’s Law suggests that bad things happen at the worst time. Such it was for me yesterday when my website crashed. Here’s the comments that should have gone out yesterday afternoon. Now I just have to figure out how to revert to former font size.)
The CME Case Shiller Futures proved to be “spot on” in predicting the Case Shiller index numbers that were released this morning (written Tuesday). The bid/ask closing quotes on all 11 contracts straddled the actual index numbers.
The chart below shows bids/offers, the Case Shiller release, the mid-market value, and the comparison between the actual Case Shiller release and the mid-market.
Bid/ask spreads had ranged from 0.80 (LAV) to 2.2 (SFR, WDC) and averaged less than 2 points. (These spreads were a touch wider than other closes – but not by much . In prior months, debates (better quotes, trades) on expiring contracts sometimes drove the bid/ask spread below one point. This expiration there wasn’t as much “chatter” and therefore less need to unilaterally narrow spreads. Broader participation is encouraged as it has the effect of narrowing spreads.)
Not only were all 11 contract quotes “right” but in five of the contracts, the difference between the mid-market and the actual Case Shiller index was less than the smallest trading price unit (0.20). The last trade in the BOSG13 contract, on Feb 24th, was 153.80, was within .01 of the actual index release.
Over the last three years the closing CME quotes have typically bracketed 6-8 index releases. (Sometimes bid/ask spreads were much tighter, sometimes there were index revisions, and sometimes the actual index results “jumped”). While I continue to believe that there will be trading opportunities around index expirations for traders with strong views, in general, this month’s experience should serve as an example that a market’s “view” -regardless of how thinly traded – should gravitate toward the expected results.
After the numbers were released this morning, bids generally returned but offers were higher. The West Coast markets showed improvement, while the Northeast markets remained flat (or in the case of NYM, weakened). There was one trade in SFRK13.
With the expiration of the Feb 2013 contract, the CME rolled out a new contract for Aug 2014.
Feel free to contact me directly (johnhdolan@homepricefutures.com) if you have any questions related to today’s markets.