Recap Post CS#’s

Wow!  In four years of market making I can’t recall seeing so many Case Shiller numbers reported outside the bid/ask range of the expiring contract.  In addition, while there have been occasions when the futures were too high or too low (versus CS #’s reported the next day) but never can I recall seeing such a mix of surprises to both the up- and down-side.

Feb pst CS For those not familiar with my analysis the table to the right shows the historical CS #’s, the Feb ’15 (G15) contract prices from the close yesterday, the difference between the G15 mid-market values and today’s CS #’s, the Nov ’15 prices from yesterday, and the change in the Nov ’15 market today.  (BTW – The historical CS #’s are what was available yesterday and prices are from around 3 PM)

The numbers in the section labeled “Actual Index” are highlighted in green to show where CS #s were above the offered side, and in red to show where the CS#s were below the bid side.  That is, in 9 of the 11 contracts, if someone had been able to calculate the December Case Shiller index by Monday 3 PM, they could have either hit a bid (in CHI, LAV and SDG contracts) or lifted an offer ( in HCI, DEN, LAX, NYM, SFR and WDC contracts) and made money.

While in some cases (e.g. SFR) it turns out that there were upward revisions that made it easier for the index to be above yesterday’s G15 offers, in other cases (e.g. WDC) there were downward revisions to last month’s CS #’s, but today’s numbers still were higher than the G15 offer.

Those that say that they can predict the CS regional index prices either have their work cut out for them, or a great opportunity.

Despite the surprises (equal to outliers), most CME prices were relatively stable today.  From the table you can see that the regions where the CS #’s were above the Feb ’15 contract prices (e.g. DEN and SFR) Nov ’15 contract prices tended to increase.  (Again for new readers I tend to focus on the Nov expiration cycle as those markets tend to have the tightest bid/ask spreads, largest open interest (OI), and longest dated contracts).  Similarly, where the index was a “surprise” to the downside, Nov ’15 markets (e.g. LAV an SDG) moved lower.

The table to the right shows changes in bids and offers since yesterday.  On balance, bids and offers moved Feb changeshigher (with the exception of LAV and SDG).  Bid/ask spreads widened from yesterday (but are still barely tighter versus Jan 30) but most of that was concentrated in the Feb ’16 contract.  (Many of the Feb ’16 prices before today were a function of calendar spreads based on the Feb ’15 contract.  With the expiration of the Feb ’15 contract those calendar spreads lapsed.  I need to dive back in to tweak the Feb ’16 bid/ask spreads going forward).

I am aware of four trades for today (1 in HCIK15 and 3 in SFR contracts).

With the expiration of the Feb ’15 contract the CME opened trading in the Aug ’16 (Q16) contract.  I expect most quotes in q16 to be a function of calendar spreads (e.g. Q16 v. X16) for the near future.

In addition, with the expiration of the Feb ’15 contract, I’ve posted a “starter set” of K15/K16 calendar spreads so that traders can debate one-year forward HPA.

Friday will be month-end so I hope to get some help bringing in spreads further and filling out prices to contracts without quotes.

Please let me know if you like to discuss a trade or have an axe you’d like touted.  You can reach me at