In my Sept 2 blog I noted that I’ve started to populate quotes for puts. Recall that there are only four regions with electronic quotes (CUS-10 city, CHI, LAX and NYM) and that most of the inquiries that I’ve received has been for short-dated (e.g. <2 year) protection. Here, I’d like to remind observers that quotes on calls can also be posted.
The table below is a tally of calls for Nov ’20 expirations -the longest contract currently outstanding. While there are quotes posted on other expirations, and while any combination of strikes and expirations can be quoted for these four regions, I’ve chosen this set as I have received inquiries in the past from people looking for public prices on long-dated calls struck at near the spot value.
The “strike/spot” column and “strike/Mid” columns show that the strikes (shown in blue) are near spot levels, but well below mid-market values on the Nov ’20 contracts.
The quoted bids and offers are just my attempt to frame discussion on where such calls might trade (but did represent actionable quotes at the time). The width of the bid/ask spread reflects: 1) that this process is just getting started, 2) that the bid/ask spreads on the reference contracts are themselves wide (i.e. more time to expiration = more uncertainty), and 3) that volatility on longer-dated contracts may (IMHO) be different than suggested by classic options. That said, it’s a start.
A point to consider as a user is that the CME calls are pure derivatives (i.e. they aren’t linked to the performance of any one house, they can be traded any time, and the CME is your counterparty).
I’d love to prompt some discussion on these calls as activity in the Nov ’20 options will likely foster activity in the futures (and I’d be happy to facilitate any combination trades). In addition, activity in calls, facilitates activity in puts. Furthermore, the launch of the Nov ’21 contract is ~ 2 months away.
Recall that options on the other 7 CME Case Shiller indices can be traded ex-pit. In addition, other strike/expiration combinations are feasible. Also, in concept, OTC options can be struck on any home price index (once index licensing and counterparty issues are addressed). Anyone interested buying/writing calls on other areas?
Feel free to contact me (firstname.lastname@example.org) if you’d like to discuss these themes.