Suggested offering levels for CME Put options

As readers of the monthly recap may have noted I’m trying to drum up interest in the Case Shiller home price index -options that can be traded on the CME.  Retail interest seems as much focused on options as (among other points) there’s no risk of being on the wrong side of a steep rally in the futures (should they try to hedge by shorting futures.)  Retail participants are used to paying an up-front fee to insure their car, life, home etc.  While the CME options are a derivative and not a product regulated by the insurance industry, they may be useful risk-mitigation product for homeowners.

Here’s an update to the table I first presented in the May monthly recap.

The numbers are offering levels where I’d be (potentially) open to writing CME puts.  I’m showing put combinations that focus on shorter expirations, and slightly out-of-the-money strikes (at least as it relates to the futures price).  Other puts, or even calls, can be quoted and traded.

Recall a few points.  First, these options are on the referenced futures contract, not the spot index.  Second, the options can only be exercised at maturity, so European style, but one may be able to trade them (or hedge with the futures contract).  Third, I’ve only been able to post electronic quotes on the CUS, CHI, LAX and NYM contracts (before a trade is done).  The other 7 contracts were only opened in Feb 2017, and so far, I can’t post prices.  Therefore, if interested on those contracts (or any contract) please feel free to contact me (johnhdolan@homepricefutures.com) directly. I’ve arranged such trades off-exchange and then cleared them on the CME.

For those that dig into option pricing models, you will note (and I’ll save you time by sharing here) that my prices reflect different volatilities for different regions.  In addition, I’ve incorporated more skew into pricing of well out-of-the-money strikes as they are harder to hedge (and there is an imbalance of interest in low-fee puts).

Note that all of these options would clear on the CME so they would be your counterparty.  That said, I remain open to writing (or buying) puts in an over-the-counter (OTC) fashion on other home-price indices to include other Case Shiller indices (e.g. Seattle), other areas in the US where there may be a more local index (e.g. Greenwich), or international cities.

I’d appreciate any feedback on the quoted levels.  In addition I’d be happy to facilitate any retail-sized trade, to include combinations with other options and/or futures.

Thanks,

John