Option Quotes

Here’s my long overdue template for option quotes.  I wanted to get this done for the month-end report AND to inquiries I’ve had for HCI (CUS 10-city index), LAX and NYM contracts.  (I figured that I’d toss in numbers for CHI to show all four regions where one can post electronic quotes).

Options Jan 29

Note that my focus (and the inquiries) has been on slightly out-of-money puts for the Nov ’17 expiration.  Any other permutation of (round) strikes, expirations and puts vs. calls is possible.  However, I think that the futures contracts already suffer from enough fragmentation of interest, so I’m going to focus on these four contracts for now.

The HCI and LAX quotes are 5×5, but I’ve only 1×1 on the others to get things started. I’m open to quoting prices on larger amounts.

(Again, options can be cleared at the CME but they have to be done ex-pit and for a minimum of 20 lots. Feel free to contact me for details.)

Users will need to decide what kind of option pricing model they want to use.  I’ve teed up my belief to some academics that while the Case Shiller indices are both a) highly auto-correlated and b) can’t be shorted (or bought and carried) that options on the spot indices might be challenging “although some retail products do reference spot indices.  By contrast, data on the closes of futures contracts makes price moves look pretty random, and you can hedge options vs. futures (e.g. delta hedging) so option models might work.  (That said,  I might consider different estimates for vol as go longer, or skew as you go way out of the money.  All the more reason to stick to near at-the-money, relatively short expirations.)

The topic of options is both theoretically interesting (to me) and seems to be an area where there is client interest.  I’d be very happy to brainstorm with someone on the topic and/or to tout any trading axes.  Please contact me (johnhdolan@homepricefutures.com) if you care to talk about either.