With the Fed meeting today and Case Shiller #’s next week, I thought it might be useful to update market participants on 1) where recent market quotes are, and 2) how they’ve changed during the month, as stocks have sold off. All of the qualifiers I outlined in the original Sept 12 blog remain in place. Note that this time I am using the Nov 2017 expiration. In addition, I’ve formatted the “Mid/Spot-1” column to highlight the three strongest and weakest forward markets).
- Offering levels have fallen since Aug 31 while bids have remained about unchanged, resulting in slightly tighter bid/ask spreads. The reduction in offering levels has been less than the decline in the S&P 500 index (which is typical). SFR has had the biggest reduction both in dollar and percentage terms.
- Bid/ask spreads now range from 0.6 in the CUS-10 index to 3.0 for BOS and DEN. Bid/ask spreads tend to be tighter where a) there have been recent trades, b) where other traders are contributing quotes, or where I tend to focus (e.g. HCI, CHI, LAX, NYM and SFR). Part of my rationale for the focus on the first four regions is that these are the four regions where option quotes can be electronically posted.
- The “Mid/Spot-1” column is intended to show which regions are priced at levels that may be consistent with implied HPA. (Again, there may be some seasonality at play here as the comparison is between the index released in Aug 2016 (spot) and the index to be released in Nov 2017). For the first time in recent memory MIA and SFR have each dropped off from being one of the top 3 regions, while the bottom three (LAX, NYM and WDC) remain the same.
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