Two weeks to go -Aug ’13 contract tightens up

I mentioned in yesterday’s blog (on calendar spreads) that the bid/ask spreads in the Aug ’13 outright markets had narrowed.  That seemed to challenge/prompt other traders yesterday to bring spreads in further.  (Thanks! Always appreciated!)  Those actions resulted in 35 changes (all upticks) to closing prices.  (I view keeping closes “current” as valuable for others looking at these contracts down the road.)  This morning, the bid/ask spreads are tighter than recent expirations and have reached levels that are typically not seen until days before expiration.

There are several points to highlight in the table (below) related to the Aug ’13 Q13) markets.

First, the bid/ask spreads (on the last line) range from 0.8 to 1.6 points.  (As in past tables the two “best” markets are highlighted in green, while the “worst” are highlighted in red).  The overall average is 1.20 points – a level I don’t recall seeing since Spring 2012.

Second, the headlines for Tues Aug 27th (when the Case Shiller indices are released) will remain the same as in past months in that LAV and SFR will continue to show strong year-on-year gains of ~24%.  As before NYM will bring up the rear.

Third, Q13 markets suggest that month-on-month gains will be strong across the board (ranging from 2.0 to 2.6% in ten contracts) with the outlier exception of CHI which is priced (at mid-market) for a MOM gain of 4.5%  (surpassing last month’s 3.7% gain).  Traders have seen big price pops in cities targeted by “rent-to-buy” programs.  Is it CHI’s turn, or just the result of thin markets?

Finally (not shown) there is open interest in 8 of the 11 Q13 contracts suggesting that some traders have both a vested interest in the markets and the opportunity to unwind before expiration.

Tight outright spreads are usually one pre-condition for more active trading.  I hope to post a blog (and quotes) later in the week focusing on inter-city spread quotes for the Aug ’13 contract that should allow even more angles to take a view on Aug ’13 prices.  (BTW- per the above comment, I’d be open to selling CHIQ13 against other contracts if someone has strong views on the CHI market).

As always, please feel free to contact me (johnhdolan@homepricefutures.com) if you care to discuss this blog or any other aspect of home price derivatives.