I’ve attached this month’s recap of activity in the CME Case Shiller home price index futures to the Reports section. (Access here). This 26-page summary has graphs, tables and observations on many aspects of trading in the CS futures.
The key observations include:
–Activity slowed with only 7 trades in December. Still 2016 volume was 57% higher than during 2015.
–There were trades in 4 regions and 4 expirations.
–Open interest rose to 41 and the Avg. time-to-expiration slipped.
–Bids were higher across all regions (except the CUS-10 where declines in longer-expiration contracts fell resulting in net lower bids).
–Forward curves continued to flatten noticeably (particularly in Calif).
–I continue to receive inquiries from parties looking to hedge California exposure, as well as Seattle, Portland and Vancouver.
–Bid/ask spreads tightened slightly, across most expirations, primarily reversing last month’s spread widening.
–Option trading was quiet, with no inquiries. (I understand that the CME may be making progress on opening up electronic trades of options to more than 4 current regions). There are traders who would like to buy protection on regions that are currently not listed.
–IC (intercity) spread quotes exist for all X18 regional pairs vs. the CUS-10 index contract. Possibly as a result, bid/ask spreads on X18 contracts are almost as tight as they are on X17! (That’s the first time I can recall a longer-dated Nov cycle expiration having as tight a bid/ask as an earlier Nov. expiration.
My sense is that interest picks up in the contracts, and that volume tends to increase, when markets turn, or there are events that give readers an additional incentive to act. Recent trading is consistent with the notions that either a) there is a new mindset about the value of longer-dated expirations in the California contracts, or b) there are sellers looking to hedge at clearing prices that may be depressed as volume is so low.
Feel free to contribute to this discussion, or ask me any questions at johnhdolan@homepricefutures.com.
Happy New Year, and thanks, John