Trading options in the “new 7” regions

As I noted in previous blogs, the CME has recently made it slightly easier to trade options in the “new 7” regions (BOS, DEN, LAV, MIA, SDG, SFR and WDC).  While it was possible in the past to trade a minimum of 20 lots ex-pit, one can now electronically trade any amount of any put/call, strike, and expiration in these regions.  However, while the broker I use (Insignia) is able to enter electronic orders for the four original regions (CUS, CHI, LAX, and NYM) such that those quotes can be seen on pricing vendors (e.g. Bloomberg), they are only able to post quotes electronically after a trade has been agreed to by the two parties off-exchange.

While this appears to be a different treatment of options trading, it seems consistent with how market makers approach other markets.  For example,  a market maker in the Eurex property derivatives stands ready to propose bids and offers, but don’t seem to post active markets (at least in the size that clients have been typically interested in trading).  Furthermore, the tally of all CME Case Shiller put/call, strike/expiration/ combinations is in excess of 1,000.  Posting actionable quotes in such a wide array of possible trades would require much more capital, technology, and time (all while taking on greater risk exposure) than I am willing to allocate.

So, while I’m open to responding to reader inquiries on possible option quotes, and while I’m happy to post those here (unless your broker can figure a way to get them posted on the CME), I’m going to periodically throw a few quotes against the wall to see if I can stimulate discussion, and/or possible trading interest.

Here’s the table from the month-end recap that I used to try and prompt debate on relatively, short-term, puts, with strikes near the spot index.  Again recall (or note for first-time readers) that the CME options reference the Case Shiller futures contracts, and are only exercisable at maturity (so European style).  Of course, the contracts are trade-able, and in my one experience with the DEN.K17.P1800 puts, once listed (for the original trade), allow for electronic posting of subsequent bids and offers.

The table lists quotes from month-end to include the referenced futures (the Feb ’18/G18) and quotes on puts with the listed strikes.   Since the strikes cover a wide range, I’ve tried to normalize the put quotes by converting offered levels into a “% spot”.   In doing so, one can see that quotes on the CUS-10 city index are the lowest, while offers on the recently more bullish, or volatile contracts (e.g. CHI, DEN, SDG and SFR) are relatively higher.

I’m open to discussion on these outright values, trade proposals involving combinations (either one option with another, or an option/futures combination), or on other expirations.  Feel free to contact me (johnhdolan@homepricefutures.com) if you’d like to tout or propose an options strategy. I’m willing to look at the other side, and/or to let others know via social media.

John