Tag: Calls

Feb 2020 (so referencing year-end 2019) puts

I’ve posted quotes at the CME for puts on the ten regional Case Shiller home price contracts (and the 10-city index) that expire in Feb 2020.  Recall that these options will settle on the value of the Case Shiller index released that month, and that that index references data through year-end 2019.

I’ve picked strikes that are close to the closing value of the referenced futures contract.  Upon request, I’m happy to discuss puts at different (5-point interval) strikes.  (Different expirations can also be structured.  I’ve chosen the Feb ’20 contracts as they can be part of the “where are home prices headed in 2019” discussion.)

Note also, that I’ve started entering quotes on calls.  I’ll fill out the balance of the table over time, or if there’s interest on a particular contract.

I’ve not found many brokers that will allow users to trade these options.  Insignia Futures (contact Joe Fallico) is one broker if you are interested.  My $100 reward for anyone steering me to a futures broker that would allow for retail trading of these options, is also still alive.

Beyond these 11 contracts, I’m also open to discussing options on other home price indices for OTC (over-the-counter) trades.  Please contact me (johnhdolan@homepricefutures.com) if you have any particular index in mind, that you’d like to hedge (long or short), or if you have any questions about this blog.

Thanks,  John

Playing the Amazon HQ2 announcement

Many are waiting for Amazon to announce the location of HQ2, their new second headquarters.  The thinking is that the “winning” city will see home prices soar in anticipation of the need to house thousands of new employees.  While there’s been lots of buzz about what Amazon might do, there’s been little offered in ways to play this announcement.   Calls on CME Case Shiller home price futures might be one tool worth exploring.  (Note that there has been almost no trading in such CME options, but as market maker, I am looking to facilitate -at first by taking the other side – trading inquiries).

The two sets of tables and graphs below show information from the CME Case Shiller contracts on two of the leading candidates: 1) the Boston area, and 2) the Washington DC area.  (Note that both areas are defined in the Case Shiller methodology and may/may not/ incorporate specific locations being considered by Amazon.  However, each may be viewed a generally reflective of home prices for the broader areas of Boston and Washington.)

I’ve added quotes on the futures, as well as indicative offering levels on a variety of call options on those futures (see lower left of each display).

So,  if one thought that home prices in the WDC or BOS area might pop, one might consider buying calls.  I’ve shown contracts for Nov  ’18, ’19 and ’20 expirations (the X18, X19 and X20 contracts) with strikes ranging from  220 to 250.  (Other strikes and expirations are possible).  As with most options, the more time to expiration and/or the lower the strike, the greater the premium.

As an example (and ignoring fees), if one bought a WDC 240 (strike) November 2019 (expiration) call for 4.5 points (at $250/point = $1,125/contract), and the Nov ’19 WDC contract settled at 250, then one would have a 5.5 point profit/contract (equal to 250 settlement price minus 240 strike minus premium of 4.5 points, or $1,375).   While there has been no volume in either call, there also would be nothing limiting a call holder from selling the call before expiration, or hedging with the underlying futures contracts.

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions on this blog, or any aspect of hedging home price indices.  As noted above I’m very interested in facilitating any inquiries, matching potential buyers and sellers, or in buying calls.

Thanks,

John