volume – HomePriceFutures.com

September Recap of CME Case Shiller futures

I’ve posted a recap of (the very limited) activity in the CME Case Shiller home price index futures for September. You can find the recap in the Reports section, or access here.

(I’ve also updated life-to-date volume and open interest tables. Both are in the Reports section.)

There was very limited trading in September (partially as I was traveling for two weeks) but prices moved lower -particularly in longer-dated expirations – across all regions (except LAV). For now, as I note below in the highlights, interest from third parties is concentrated in: front contracts, SFR region, and puts. As such, I’m going to start this month to shift my focus from posting continual two-sided prices on all (121) contracts to more concentrated focus on those three areas. I’ll still try to recap all prices in month-end reports. Of course, anyone can continue to post prices in any contract but best to contact me if you’d like a response to your inquiry.

Month-end highlights include:

–There were 2 futures contracts traded in September –both in SFRX18.

–There were no options trades (but multiple inquiries focused on 9-18 month, slightly out-of-the money strikes.)

–Despite low volume, there is interest from third-parties, primarily in front contracts, across the SFR expirations, and puts.

–Bids and offers were lower across all regions (except LAV and MIA). Prices for LAX and WDC were down the most.

–Bids and offers were lower across expirations with biggest declines in contracts beyond Nov 2020.

–OI on futures fell from 48 to 47.

–OI has become even more concentrated in Nov expiration cycle with all but 2 of 48 OI in Nov contracts.

-Paris contracts have not begun to trade. Index representatives will be in the NYC area in mid-November should anyone want to hear more.

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions on this blog, or any aspect of hedging home price index exposures.

Thanks, John

June recap posted

I’ve posted the June recap report, as well as updating graphs for month-end prices, price changes between May and June, and tables showing volume and open interest over the last five years. All reports, graphs and tables are in the REPORTS section of this website.

As to the recap, there were only two trades, so not much to say there.

On balance it was a quite month with limited quote updates (with the exception of traders in CHI and SDG).

One bright spot is that bid/ask spreads converged back to levels from a few months ago. Spreads are tighter in all 11 regions and in 10 of 11 expirations. Much of that tightening took place in the Q15, Q16 and X17 contracts. The Q15 front contract is now at bid/ask spread levels seen when other contracts had two months to expiration.

The CUSX16, and now X17, contracts are carrying their weight as benchmarks. I’ve used the 2-point bid/ask spread in the CUSX17 contract as a leg in intercity spread quotes – which is part of the reason that X17 bid/ask spreads have come in so much.

The other ray of hope is that the number of inquiries for information on the contracts continues to climb.

Please feel free to contact me at johnhdolan@homepricefutures.com if you have any questions. (I’ve switched servers so hopefully fewer tech issues going forward.)

John

March recap posted

I posted a recap of activity in the CME S&P Case Shiller home price futures for the month of March in the Reports section. In addition there is a set of graphs for 11 contracts, and prices and price changes for the month. You can access them here (Recap, Graph, Prices). (Note: while my intent was to capture March 31 prices I had technology challenge, so comparisons are primarily between Feb 27 and April 1).

The key observations for the month include:

12 trades across 5 regions and 3 expirations (all 2015 contracts)
Higher bids across all 10 of 11 regions (aggregated across all expirations) WDC the exception
Tighter bid/ask spreads across 9 of 11 expirations (with biggest improvement in K15, Q15, and K16 contracts)
Increase in OI from 57 to 64
Several calendar spread traders (mostly K15 v Q15)
More Intercity Spread quotes (but no trades)
A sense of greater involvement by other traders (particularly in 3 West Coast contracts -LAX, SDG, and SFR)
YTD volume still lowest since 2010
Another month of CUSX16 quoted at < 1.0 bid/ask spread

Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions about the recap, or any aspect of hedging home prices.

Recap of Nov activity posted

I’ve posted a recap of activity in the CME S&P Case Shiller home price index futures for the month of Nov to the Reports section of this website (or one can click here to access.) The report uses an end date of Monday Dec. 2 as the last business day of November (Friday Nov 29) was in the midst of a holiday weekend.

In addition I’ve updated month-end graphs, prices, price-changes on the month, and long-term volume and open interest tables (that can all be found in the Reports section).

The “headlines” for the monthly recap include:

Narrowing of bid/ask spreads during the month, followed by dramatic widening post CS #’s
Volume of 23 contracts
Open interest dropping from 149 to 81 with the expiration of the Nov ’13 contract (I’ve included a table showing how this is an annual phenomenon
Introduction of Nov 2018 contract
Tables on volume, open interest, price changes, bid/ask spreads, calendar spreads
Graphs for each of 11 contract (both linear graphs and bar graphs)

I may take some pages of the report and focus on them in separate blogs but for now I just wanted to post the report.

If you have any questions, please feel free to contact me: johnhdolan@homepricefutures.com

Basics: Historical Volume, Open Interest 2006-2013

In working to update the marketing book, I compiled historical open interest and volume data from the CME covering the period 2006-2013 into two tables in the Reports section (or that one can access here volume, open interest) and shown here.

The volume table shows that 10 times more volume occurred when the contracts were first launched in 2006. In terms of any good news/bad news/ takeaway from the volume figures, the numbers show that there was a time when there was a lot more trading, that we are doing a small fraction of that amount today, but that, given the history, it’s not unrealistic to hope that such volume numbers might be achieved again at some point down the road.

Open interest ran down fairly quickly after 2007. One possible reason was that the CME originally only rolled out contracts with expirations of a maximum of one year. Today’s longer contracts allow for more “stickiness” to open interest. Unfortunately, most trading (and open interest) has been in shorter dated contracts so replenishing expiring OI has been an ongoing issue.

I continue to receive inquiries about contracts, and traffic on this site has picked up. While all real estate indices have their quirks, I believe that this is the best “pure play” platform for expressing a broad view on 2-4 year forward real estate index values. I remain hopeful that we are one trade away from two parties being introduced for a 100-lot (or bigger) brokered trade. I’m happy to facilitate orders to that end. I’ve heard from both hedgers and foreign bulls but, to date, have not quite been able to match them up. I would suggest that any large potential buyers/sellers focus on the CUS, LAX and NYM contracts as that is where the most consistent interest has been.

Please feel free to share any potential interest with me at johnhdolan@homepricefutures.com and I will endeavor to bring the two parties to common price.

YTD trading volume

In a proverbial case of “Good News/Bad News” trading volume for the S&P/ Case Shiller (home price index) futures traded on the CME for 2012 was 83% higher than for 2011. As illustrated in the table to the right there were 357 trades (with notional value of ~$10mm) during the year, up from 195 in 2011 and far fewer in 2010.

While that’s good news, it’s still a far cry from a level that would entice some institutional account from putting their toe in the water. That said, as I get feedback from accounts, I feel that we are one trade away from waking up some morning to find that 100 (or 500?!?) lots have been crossed between a buyer and seller who each appreciate the attributes of a publicly-priced, exchange-cleared contract, on the benchmark home price index.

While volume improved from 2011 to 2012, the uptrend slowed in the second half of the 2012. Trading volume slowed from 267 contracts in the first half of 2012 to only 90 since June 30th.

My sense is that couple of factors influenced the numbers:

The turn, and jump in CS indices after May resulted in wider bid/ask spreads, as traders became more cautious. Wider bid/ask spreads tend to discourage traders who are concerned about market liquidity. While I strived to populate bid/ask quotes in all 121 permutations of regions and expirations through the summer, I decided to narrow my focus during the second half of the year. I would imagine that seeing some contracts with no quotes discouraged some potential traders.
Some participants that had been more actively involved in posting quotes seemed to drift to the sidelines. While this is somewhat a corollary of the first reason, at times, there seemed to be very few people posting quotes- at any level.
Some traders capitalized on calendar spreads offers that did not adjust quickly enough to the change in market sentiment. ( I know ’cause I was the short). Calendar spread trades, by some measure, double-count volume as trades are executed simultaneously in two separate contracts. There was quite a bit of calendar spread trading in the first half of the year, and almost a boycott during the second half.

There are probably other factors, but these seem to be the key ones to me.

So….how do we reverse the trend from the second half of the year and set the stage for 500+ contracts in 2013? My sense is that three things are required:

Market participants need to focus on spread orders to both express relative value views while also minimizing risks. While most of the spread orders in 2012 were for calendar trades, my hope is that inter-city trades will appeal to traders in 2013. Inter-city trades may be more challenging to follow, but I think that they provide a better platform for expressing views on relative value.
New traders need to “own” a contract. That is, at various times there’s been a strong interest in particular regions. LAV, DEN, CHI and LAX have all had trading “champions” over the last two years that have either posted tight bid/ask markets and/or volume at key levels. Traders should feel free to pick a contract and make it their’s. I’m happy to use this blog to fill in gaps in pricing, or to promote any axes that I see (or that traders share).
Network to bring in new players. I had a wonderful set of meetings at the recent AEA conference in (WARM) San Diego. There is a world of people interested in the concept of home price trading and hedging, and the more that they hear about the contracts, the more likely some are willing to cross over and actually trade. I’m willing to get on a plane (or Skype) and explain the contracts to a trader, a set of mortgage bankers, whole loan portfolio holders, or anyone else that might have an interest in learning more about the contracts.

Net, a part of me would be content with reading that 500 contracts traded in 2013, but I still believe that an exponentially larger amount is possible. Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any ideas on how to make that dream a reality.