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Mid September update on CME CS Futures

There’s not a lot to update. Bid/Ask spreads have been inching tighter on a number of contracts (see summary table below). Activity seems to be concentrated in the front contracts, and in regions where there was some trading in August (e.g. CUS, LAX, and SFR) but there doesn’t appear to be too many people involved in the price adjustments and many of the price adjustments have been for the minimum trading move of 0.2 points. The CUS market seems to have had the most attention.

The CME market is pricing in continued gains between now and the (non-seasonally adjusted) November Case Shiller release (of Sept #’s). (See candle graph below-left that translates bids, offers and mid-market levels into %/spot). CHI, with strong seasonal factors is pricing in the highest gains, but other contracts with smaller seasonals (e.g. LAV) are also strong. As the height of the candle reflects the bid/ask spread one can see that that tightest markets are CHI, CUS, LAX and SDG.

Some of the outright bid/ask adjustments reflect tighter bid/asks in the calendar spread markets. For example (referring to the table below that highlights the CUS contract) the CUS X15_X16 calendar spread was -10.0/-8.4 at the time this was written (all prices are stale by the time you read this). This 1.6 bid/ask in a calendar spread is tight by historical norms. The calendar spread market translates into implied HPA of 4.2 to 5.0% for the one-year period. Anyone expecting HPA to be outside that range might consider buying or selling the spread. (Similar tables are available for other regions with different implied HPA).

Net, if the past few months is any indication, these markets will remain quiet up to the middle of next week (which is fine with me as I’m on a five-day bike trip). That said, I’m open to touting, or responding to, any axes that traders might have. Feel free to contact me at johnhdolan@homepricefutures.com if you’d like to help me stir the pot.

Less is more: Narrowing focus to CUS, NYM, LAX for early June

Since there has been so little trading in the first halves of the last 3-4 months I’d thought that we might have more luck with early-in-the-month trading by suggesting that trades focus on a smaller set of contracts. As such, I’ve pulled together information on the CUS, LAX and NYM contracts,for the November expirations into this handy table. I’m happy to respond to inquiries on other regions. This is just an experiment to see what happens if trading is focused on a narrower set of contracts during an otherwise slow period.

Note: LAX and NYM constitute ~50 of CUS 10-city index. Both contracts have electronic options traded (if anyone wants to go there). Also both contracts might act as good anchors for possible regional inter-city spreads (e.g. BOS/NYM or LAX/SDG) so in tightening spread in these two contracts, there may be spillover benefits to others.

The table pulls together:

Outright markets
Percent gains (bids/offers) vs. spot index
YOY calendar spreads
Annualized YOY % increases (for bid-side, ask-side, and midmarket
(I hope to add IC spreads later)

Note: Prices are hours old and may have changed.

One interest in setting up this table is for others to make these prices even more dated by posting levels inside these quotes and spreads. I’ll try to highlight improvements or any trading axes that people might want to share.

Two of the these three regions (CUS, LAX, NYM) already have the tightest bid/ask spreads for the 9 expirations starting in Feb 2015 across all 11 regions. (DENQ14 and LAVX14 sneak into the top two on earlier expirations).

I’ve only shown the Nov cycle expirations as that’s where open interest is concentrated and those expirations already tend to have tighter bid/ask spreads.

Contract prices and spreads are consistent with the notion that NYM will match or slightly outperform the CUS 10-city index, while LAX looks like it will lag. (Strength in other areas -e.g. CHI and SFR, bring the CUS contract back in to fair value versus the ten components).

I’m open to other ideas to stir up trading activity in the next few weeks. Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any ideas or questions.

Recent Activity: Aug/Nov ’13 Calendar Spreads

Most of the limited trading over the last few weeks seems to have revolved around Aug/Nov ’13 calendar spreads (Q13/X13). Trades involving the X13 leg have occurred in BOS, DEN, SDG, SFR, and WDC contracts. It seems consistent to me that recent questions about the staying power of the rally in home prices should show up in calendar spreads. With the August release of the Case Shiller #’s about two weeks away, August bid/ask spreads have tightened to average 1.5 points. (All are <= 2.0 points).

The combination of tight Aug spreads, and two-sided activity in Aug/Nov calendar spreads will help tighten November markets. Any help/thoughts/counters to the recent Q13/X13 spread markets (shown at the left) would be much appreciated.

If you have any questions, or care to discuss these spreads- or any longer ones – in more detail, feel free to contact me (johnhdolan@homepricefutures.com)