A full set of Inter-city spreads for Nov 2018 contracts

I’ve filled out prices for intercity (IC) spreads on all ten regions (vs. the CUS 10-city index) for the ic-spreads_nov-18_-sept-28Nov 2018 contracts.

IC spreads are important as they allow viewers another way to see which regions are priced at levels that are consistent with a region out-, or under-performing the 10-city index.   Traders can also use them to express a view on relative performance of a region vs. the 10-city index (or between regions) by entering into a simultaneous long position on one contract and a short position on a second at a pre-negotiated spread, without making an explicit view on the absolute levels of index levels in the future. (1)

I’ve converted the IC price quotes into implied relative percentage gains of one index versus another.

(For those reading about IC spreads the first time, I’d advise you to review my introductory blog  on IC trading).

For example, the DEN contract has one of the highest implied price gains.  The IC dollar spreads convert (using my approach) into levels where the bidder is willing to buy HCI/sell DEN at a 3.6% discount, while the seller is proposing the opposite trade with HCI at a 2.0% discount.

The IC contracts that are priced where HCI under-performs a regional index include DEN, LAV, MIA, and SFR.  The IC contracts that are priced where HCI outperforms the regional indices include CHI, LAX, NYM and WDC.  The BOS and SDG contracts straddle HCI performance.

I’d be open to hearing your views on the relative implied forward differences in HPA on the ten contracts.   I’d be happy to facilitate any modest spread trade on the quotes shown hear, or on regional pairs (e.g. BOS vs NYM, LAX vs. SDG).

Feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions or trading axes.

(1) A caution -IC spreads do not remove outright risk as the notional values of contracts varies by region.  I’ve tried to address that in the past by agreeing, for example, to buy 3 LAX while selling 5 CHI.