CME Market reaction to CS #’s (Jan 2018 release)

Quotes on CME Case Shiller home price index futures were generally higher on Tuesday, albeit with wider bid/asked spreads, following the January release of the Case Shiller #’s for November.  As highlighted in table below, the big movers were the California contracts (w/ SFR much higher, and SDG lower) and CHI (much lower).  (Note, I’m using the Nov ’18 – X18 – contracts for illustration.  In general price movements were of a similar direction along the expiration curves, with longer-dated contracts, particularly SFR offerings, moving more than shorter-dated contracts.)

There were 3 trades -an outright CHI trade, and a CUS (10-city index)/CHI Intercity trade (that showed as two legs).

Please feel free to contact me ( if you have any questions on this table, or any other aspect of hedging home price indices.

Thanks,  John


Dec/2017-recap posted

I’ve posted a brief recap of activity in the CME Case Shiller home price index contracts to the Reports section (or you can access here).

Highlights include:

–There were 3 futures contracts traded in Dec. in 3 regions across 2 expirations.  There were no options trades.

–Volume for futures and options during 2017 (182 lots) was higher than 2015 and 2016 primarily due to increased in options trades.   That said, activity has slowed dramatically over last 3 months.

–For Dec, bids and offers generally rose across most regions and expirations (except ask side of MIA).

–Bid/ask spreads were about unchanged

–Front contract (G18) bid/ask are just under 2.0 points.

–At month-end, there were bids in all 121 contracts, and  two-sided quotes in all contracts out to Nov ‘19, and then X20.

–OI on futures and options remains unchanged at 34 and 17.

–OI remains very concentrated in November expirations (74%).

–Put writers still needed!  I sense that options trading is the way to grow volume, as strong retail preference for taking one-sided risk exposures.

Please feel free to contact me ( if you care to discuss any aspect of this post (or the recap) or any other aspect of hedging home price indices.

Best wishes for a healthy, happy, prosperous 2018!



Anyone want to sell 100 NYM contracts (~$5mm notional)?

I posted the headline as: 1) with the reconciliation of the tax bill, potential concerns on areas with relatively high mortgage balances and/ or relatively high state and local taxes, go from proposed to actual, and 2) to discuss how, exactly you might want to approach the issue of selling (or buying) 100 lots.  It’s the second point that I want to discuss here.

Most of the feedback I get from institutional traders about the CME market is that there’s been near no trading, and the bids and offers are only for a very small size (often 1 lot bid versus 1 lot offered) .  Few traders want to post an offering (or bid) for much larger size if a) it’s just going to sit there, and b) they have to pay attention to it throughout the day/week.  Let me borrow a concept (TaskRabbit) and suggest that you “sub-contract” your interest in buying/selling to me.  Not only am I willing to spend many more hours per week watching for changes in quotes, but as the market maker, I am more likely to get an inquiry (or know of an interest) on the other side, than many much-larger firms who don’t see a reason to dedicate resources (yet) to this effort.  I’m not looking to take orders (at least on exchange-traded products) so trades will be done until re-confirmed by you.

I’m open to taking on your “tasks” (e.g. trying to find the other side of your trade) leaving you free to focus on better uses of your time.

Send me your ideas, and I’ll try to match inquires, stir up interest, or fill in a portion of what you’re looking to do.

I mentioned NYM as the tax bill just passed, there are lots of traders who probably don’t want to be glued to the Case Shiller screens, and the notional value of 100 lots comes out to a good size of $5mm, but in concept, I’m open to any region/expiration.  I would share that between the inquiries I get, and the interest from others bidding and offering contracts, that the HCI, BOS, CHI, NYM and SFR Nov ’18 contracts are the places you’re most likely to find someone else looking to trade.

Feel free to contact me ( if you care to discuss this blog, or any aspect of hedging home price indices.

Thanks,  John


Nov recap of activity in CME Case Shiller home price index futures

The monthly recap of activity in the CME Case Shiller home price futures contracts for November is available in the Reports section or you can access here.    This month’s report re-introduces separate pages for each region.  In addition, I’ve added YTD trading in futures and options to each regional page.

Summary observations include:

–There were only 2 futures contracts traded in Nov. – one in SFRX17 and one in DENX18.  There were 4 options trades –two each in  DENG18 and DENX18.  In addition to the smallest number of futures trades in over a year, there seemed to be sharp reduction in the number of traders posting bids and offers.

–That said, the 2017 volume of combined futures and options (169 lots) is already higher than in 2015 and 2016.

–Bids and offers generally rose across most regions and expirations (except WDC).

–Bid/ask spreads tightened marginally.

–Front contract (G18) bid/ask already just 2.3 points.

–At month-end, there were bids in all 121 contracts, and  two-sided quotes in all contracts out to Nov ‘19, and then X20.

–With Nov ’17 expiration, OI on futures dropped to 34 futures, but remains constant on options at 17.

–OI remains very concentrated in November expirations (74%).

–Note that I’ve added YTD volume in futures and options, by region, in second half of this report.

–Put writers still needed!

Please feel free to contact me ( if you’d like to discuss any aspect of this recap, or anything related to hedging home price indices.




Recap of CME price moves post CS #’s

Prices on the CME home price index futures were slightly higher after this morning’s release of the Case Shiller indices.  The table below shows the market quotes on the expiring Nov ’17 contract from yesterday, versus the actual CS #’s released this morning.  I would highlight three surprises: DEN and WDC where the index values were only slightly below the bid side of the Nov ’17 contracts, and NYM which came in far above the offered side of the NYMX17 contract.  (Not only did NYM come out higher, but last month’s NYM index was revised lower, making the printed gain even more dramatic.  Note that last month’s WDC index was also revised lower by 0.52.  Absent that the WDC index value might have been within the bid/ask range of the WDCX17 contract.)

With the strong move in the NYM index, prices on contracts rose slightly (as illustrated here using the Nov ’18 contract).  (Note that the S&P contract is also up 20 points, which might bias the results).  Averaging across all expirations, bids are about 0.5 higher, while offers are  about 0.7.  Gains were largest in the BOS and NYM contracts, while CHI, DEN and WDC were marginally lower.  As typically happens, the largest moves were seen in the contracts were the reference indices produced the biggest “surprises” (in this case NYM and WDC).  I’d argue that changes versus expectations, not the size of a change, is what prompts contract prices to move.

There have been no trades today, and in fact it has been a very quiet day/ month.  I haven’t noticed any other traders placing bids and offers today.

Please feel free to contact me ( if you have any questions about this blog, or any aspect of hedging home price indices.




Nov ’17 contract expiring -tomorrow’s #s??

With the expiration of the CME Nov ’17 Case Shiller futures on the ten regional (and one 10-city index) today, we get to see: 1) an illustration of convergence, and 2) what “the market is predicting” for tomorrow’s Case Shiller numbers.  Recall that CME contracts settle on the index values released on the last Tuesday of every month.  Recall also, that while there are CME contracts expiring on a quarterly cycle (i.e. Feb, May, Aug and Nov) that the November expiration is the one that has the longest time outstanding.  That is, the Nov ’17 contract was opened Nov ’12, and tomorrow, the CME will open a contract for Nov 2022.

The graph below illustrates the key point of all cash-settled contracts.  That is, since the contract is settled on the index value at expiration, the contract price and the index must converge to the very near the same price.  Note that while the Case Shiller 10-city index has been rising the last 2+ years, that the futures contract has been range-bound between 210 and 220.  That is, while the press has been reporting on the “news” that home prices have continued to rise, expectations (at least as measured by the closing prices of the Nov ’17 HCI contract) have barely changed.

Second, I mentioned that prices converge to “very near the same price” as traders don’t know precisely what the Case Shiller index numbers will be tomorrow -despite the fact that the data for the indices (to be released in November) over the period July -August -September.  I acknowledge that there are huge efforts to predict tomorrow’s numbers, but, in theory, those numbers should be incorporated into CME quotes.

The table below shows bids, offers and mid-market levels on the 11 contracts (as of 10 AM) that stop trading at 3 PM (EST) today, and settle tomorrow.  (Note that end of trading on front contract is before close of trading (4 PM- EST) on other contracts).  Contract bid/ask spreads average just under 1.0 point, with the HCI (10-city contract) the tightest, as is often the case.

As an example, should someone “know” that the SFR index value to be released tomorrow will be 243.0, they could sell a contract at the current bid of 244.0 and collect $250 (i.e. the value of one point per contract) when the 243 index is printed tomorrow.  On the other hand if someone “knows” that the index will be 246.0, they could buy a contract at 245.0 and pocket $250 when they are proven correct.

Since neither has happened (yet) today, I would posit that the SFR index tomorrow will be somewhere between 244 and 245, so there is no arbitrage opportunity.

Feel free (and I will blog tomorrow) to compare the actual results against the 3 PM quotes on these contracts.  While I embrace the theory that these contract values should provide boundaries on expectations, in each quarterly expiration we see 0-6 outliers/surprises (i.e. where the index value is outside the bid/ask quote on the previous day).

If anyone has any questions on this blog, or any other aspect of hedging home price indices, please feel free to contact me (




A reader explains the basics of home price hedging

One reader -Justin Welsh- wrote an 11-page description of why a homeowner might want to consider hedging with home price futures.  Justin’s report goes into a lot of detail, provides a number of graphs, and walks through various scenarios.  The report has quite a bit of detail.   I’ve attached it here (as received, without any editing) for your consideration.

Anyone wishing to contact Justin can do so at

I’d be happy to take other contributions that relate to the topic of hedging home price risk.

Thank you Justin for your effort, and your insights.



Revisiting ways to play the impact of a lower “Mortgage Interest Deduction” (MID

I had previously written about possible ways for market participants to play the impact of the prospects to changes in the Mortgage Interest Deduction (MID) in a blog on Oct 21 .    Since this remains a timely topic, I again want to offer two opportunities for fans of the NAR’s (National Assoc. of Realtors) views, on how they might play the pending collapse in home prices in the higher- home price areas that have historically taken advantage of MID.

The first would be to enter either an OTC spread trade, or a total rate-of-return swap (TROR) on the difference between the performance of the Case Shiller 10-city index and the Case Shiller National index over some time frame.  The CS-10 index contains many of the areas with higher-priced homes (e.g. NY, San Fran, Los Angeles) while the National index covers a much wider cross-section of the country that includes many lower-priced homes, where borrowers would presumably be less impacted by a cut in the ceiling in the amount of mortgage debt subject to the MID.  The graphs to the right show the index values for the Case Shiller 10-city, 20-city and National indices (on top) as well as the year-over-year percentage changes in the indices.

Note that while the 10- and 20-city indices did much better in 2013, that the National index has recently been outperforming the 10-city index (i.e. 6.07% vs 5.33% for the last year, as of the October Case Shiller numbers released in Oct.)  I would be open to an OTC trade on the differences between the index levels one-year forward (currently 216.5 on the 10-city index and 195.1 on the National index), or on the difference in percent gains (currently 74 bps) on the YOY gains in the National versus 10-city index.

While the above speaks to possible OTC trades, one can also take a more targeted view (by area) on existing CME products (i.e. Intercity Spreads).  That is, one can “bet” on the performance of a particular regional index versus the Case Shiller 10-city index, if one truly believes that the areas with the highest priced homes will suffer relative price declines with the lowering of the cap on mortgage interest deduction.

The table above lists six regions that have both larger than average home values (using the Zillow ZHVI) as well as having regional CME Case Shiller futures contracts.  (Note that while Zillow and Case Shiller geographic regions are not a perfect overlap, the ZHVI index does a good job of comparing the average prices to their national average.  By any measure these six regions have higher-priced homes.)

In addition to a trader just outright selling the NYMX18 or SFRX18 contracts (X18= Nov 2018), they could also enter into an Intercity Spread trade where they simultaneously buy one contract and sell the other (in this case the CS 10-city index contract -HCI).  This might be a more conservative play than just an outright sale as the end result will be a function of the difference between the two indices referenced in a trade.  These IC contracts are listed where the bid side shows the price difference between where one might buy the HCI contract while selling the regional contract.  So, for example, the -29.6 bid on HCI/SFR-X18, displays the bidder’s willingness to buy the HCIX18 contract at 224.8 while selling the SFRX18 contract at 254.4.

Note that the 224.4 price on the HCIX18 contract is 3.84% above the current spot level (of 216.49) while the SFRX18 price of 254.4 is 4.47% above the SFR spot index of 243.52.    In effect, were one able to execute this IC trade on the bid side, one would be selling the SFRX index (for Nov 2018 settlement) with higher priced gains over the next 13 months, than the HCI index by 63 bps.

(The analysis in blue, shows the relative differences were a buyer to pay the offered side, in this case -28.0 points on the IC spread).

Note that if one were able to buy the IC spread on the bid side, they would be entering the trade at levels where in 5 of the 6 cases, the regional contract would be sold at a level with implied gains, higher than that of the regional contract. (The NYM contract is priced for lower price gains than the 10-city index).

Even if one bought the IC spread on the offered side, they would still be selling the BOS and DEN regional contract with higher priced gains than the HCI contract.

I am open to facilitating inquiries (or trades) on small amounts of such IC spreads to prompt further reaction to the MID debate.  Please feel free to contact me (johnhdolan if you have any questions on this blog or any aspect of hedging home price indices.

Recap of CME Activity in Case Shiller Futures for Oct 2017

I’ve posted a recap to the Reports section of activity in the CME CS futures and options contracts for Oct.  (Click here).   Since there were no option trades during the month (and since it’s already Nov 3) this month’s effort is an abbreviated report that still has 13 pages of tables, graphs, and data that should be of interest to anyone following these contracts).  I’ll post recaps on individual contracts and options next week.

Highlights include:

–There were 9 futures contracts traded in Oct. across 5 regions and 5 expirations, but trading took place on only 2 dates. Oct was one of the quietest trading months over the last few years with other traders only infrequently posting bids and offers.

–Volume of combined futures and options over the last 12 months is 226 contracts (or about $12-13mm in notional value).

–Bids and offers generally rose across most regions and expirations (except SFR and WDC).

–Bid/ask spreads tightened marginally.  Longer-dated contract spreads benefitted from stronger calendar spread bids that pushed up bids on longer-dated contracts.  However, spreads remain wider than normal in front contract (~2pts).

–There were bids in all 121 contracts, and  two-sided quotes in all contracts out to Feb ‘19, and then X19 and X20, for most of the month.

–OI increased to 51 futures, and remain constant on options at 17.

–OI remains very concentrated in November expirations (82%).

–There were no option trades in Oct, but I continue to get inquiries on 12-24 month, slightly lower than spot level, puts.  Put writers needed!

Please feel free to contact me ( if you have any questions about the recap, or if you care to discuss any aspect of hedging home price indices.