The combination of three events (the end of summer, my decision to switch benchmark to Nov ’18 expirations, and the recent sell-off in the stock market) prompted me to re-think how to show summary information to anyone potentially interested in the CME Case Shiller home price index futures. This is the result of that effort (that I will try to publish going forward).
The table below shows recent quotes (not live) for the 11 Nov ’18 contracts. I’ve added the spot level (in green), a column that shows the bid/ask spread (in yellow), the percent difference between the mid-market level (i.e. the average of bid and ask) and the spot index (in orange). The columns to the right show both the dollar and percentage changes in bids and asks since some prior date (in this case Aug 31).
Some observations, and caveats:
- Most bid/ask quotes are 1×1 (i.e. one lot bid vs. one lot offered), so be cautious about inferring depth of market. (As such, the only advice I offer potential traders is to use limit, not market orders).
- Most bid/ask quotes are mine (either outright or on calendar spreads from other expirations). More input would be helpful for both depth and a variety of opinions, and might narrow bid/ask spreads.
- Typically (and here) the HCI contract (e.g. the CUS 10-city index) has the tightest bid/ask spread. Most of the inquiries I get are focused on HCI, CHI, LAX, NYM and SFR contracts, so those are the contracts where I’ve tried to keep spreads relatively tight. Tighter spreads have typically resulted in more trades. A additional benefit of tight spreads on this contract is that prices feed inter-city spreads to other contracts. (As such, tighter HCI X18 quotes may translate into tighter bid/ask spreads on other contracts. In addition, since some of these quotes are generated by calendar spreads, either tighter Nov ’17 bid/ask spreads, or tighter Nov ’17/Nov ’18 calendar spreads, might lead to tighter Nov ’18 spreads).
- The change in bid/ask spreads (either $ or %) only have relevance if you believe that the starting quotes were “accurate”. For example, I see the MIAX18 is unchanged. That could be explained by conservative bid on Aug 31.) In addition, I would expect smaller impacts to shorter expirations, and bigger impacts to longer-dated expirations. (The analogy of playing “crack the whip” on ice skates comes to mind).
- The “mid/spot-1” column may be of interest in which contracts have the highest implies HPA (and the usual suspects of DEN, MIA and SFR show well) but remember to take into account seasonal factors between spot index (in this case the August release of the June index) with the Nov ’18 contract (which references the Sept ’18 index). I would note that all contracts are priced consistent with higher index levels 2+ years from now. (Any outright bears out there?)
- I’ve teed up this table to prompt discussion on how much home price index futures “should” move with changes in the stock market (and housing/building stocks specifically) as well as with changes in interest rates. Any thoughts?
Net, there is lots of information here and lots of potential ways to express an opinion on where home prices are headed. (Don’t forget options!) Feel free to contact me (firstname.lastname@example.org) if you have any questions or trading ideas.