May release of CS #’s

Yesterday’s Case Shiller #’s were both 1) outside bid/ask ranges on the expiring May16 contracts and 2) a reminder that there may be trading opportunities right up to the last days of trading.

May 16 post CSB

The table above shows that 9 (!!!) of the Case Shiller indices were above the offered side of the expiring May contract.  Since the May contracts settle on these indices, one could have bought any of the nine contracts the last day of trading, and made money on the settlement.

I’ve been monitoring settlements on expiring contracts for 5+ years and this is by far the biggest set of outlier results that I’ve seen.  (As an aside, there have been two expirations where all within bid/ask spreads.  Most of the time the outliers are random – e.g. half above/ half below).  This was a shock (to me, but not traders who bought in the last week -hat’s off to you!).

What makes these results even more noteworthy is that the bid/ask spreads on the expiring May16 contracts were much wider than normal.  Typically I try to drive bid/ask spreads to 1.0 by expiration.  However, here SDG and SFR were much wider and the index results were still above offered side levels.

Prices of longer-dated contracts rose, and bid/ask spreads widened (dramatically) after then numbers on Tuesday.  Net though, prices for the month moved up only slightly and bid/ask spreads were not “too” much wider.

I’m going to head back to the drawing board on how to approach expiring contract valuations.  I’m open to advice from anyone.

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any ideas on index calculations or trading ideas.