CME Reaction to July release of Case Shiller #’s

Quotes on the CME home price index futures were generally lower this morning (relative to last Friday) after the monthly release of the Case Shiller indices.  The table below shows bids, offers and mid-market levels for the 11 Nov ’17 contracts.  The mid-market values for the BOS, NYM and SFR contracts were all lower by more than one point by the close.  (This despite the large upward revision to last month’s NYM index.)   The CHI and LAV contract were the only two mid-market values that were higher after the news.

The only trade today was two lots in the SFRX17 at 241.4.  Note that 1) that there was an offer to sell more through the close, and 2) that the offer (and trade price) was lower than the bid on Friday.

Activity has been quiet during July with only a total of four trades.  Bid/ask spreads are <= 2.0 on all Aug ’17 contracts.

Please feel free to contact me ( if you have any questions or trade ideas.

Thanks,  John

Home Prices vs. Stocks – a good source of diversification?

Inquiries from traders looking to hedge (sell) housing futures (or buy puts) continue to dominate.  As such, I’m (unabashedly) putting forth an idea to try and bring in some interest from the long side (on forward contracts).

First, the graph below shows the closing prices on the Nov ’17 contracts for the S&P 500 contracts vs. the CUS 10-city index.  As such, this is a comparison of futures vs. futures for the same expiration.

As I note in the titles for the vertical axes, the S&P contract is up 19.7% over the last two years, while the CME CUS-10 city futures contract is up only 1.7%.

As you’d expect from eye-balling the graph, there is a low correlation between the two markets.  If I use daily changes, the correlation is ~25%, but if I use discrete 20 business day changes, the correlation drops to about ~10%.  Net, one would have been quite diversified.

Second, if one looks back further, the SPX cash index is up over 80% over the last five years.

Finally, (in highlighting where I need to cultivate interest on the long side) the forward CUS contracts (e.g. those that expire in Nov 2018-2020) have mid-market values that are only 3.2%, 5.2% and 6.8% above the mid-market of the Nov ’17 contract.  My sense from public pension consultants is that the “experts” are projecting 5-6% gains per year on the stock market.

Taken together, home price contracts: a) have lagged gains in stocks, b) seemed to be priced for low gains going forward, and c) have demonstrated low correlation to stocks.  Net, for anyone thinking that stocks may have risen too far, or for too long without an interruption, housing contracts may be worth exploring.  (Note that the CUS-10 index has a higher weight to more urbanized areas.)

Now, an alternative view is that corporate America (as reflected by stock prices) has out-performed, and will continue to out-perform home prices.  Clearly if robots replace all workers, or if all jobs are shifted overseas, there’ll be few people to buy homes.  In addition if overseas profits are repatriated, or corporate tax rates cut, cash flow to companies should improve.   Those fears (and the prices of homes vs. stocks) highlight the 99:1 divide in society (a topic for a separate blog).

However, while those themes may be in vogue, there’s always a danger that they are more-than-priced-in to current stock values.  Taking outright home price exposure, or writing puts on home price options “may” be a way to take an uncorrelated counter-view on today’s market sentiment.

My sense is that the CME housing contracts represent one of the best public  “pure plays” on home prices.  By contrast, bank stocks have other risk, and builder stocks are impacted by input costs (e.g. tariffs on Canadian lumber), labor costs, and local zoning.

Feel free to contact me ( if you’d like to discuss these themes.  While volume has been extremely low in the housing contracts, my sense is that a programmatic long might be able to accumulate open interest at attractive levels.



Recap of June CME activity posted

I posted a recap of activity in the CME Case Shiller home price futures contracts for June.    You can access in the Reports section or via this link.

The 28-page report contains numerous tables and graphs of relevant information, including a section with graphs, prices and put option quotes by region.  For example this table shows price changes (aggregated across expirations) by region, and the change in spreads (positive is tighter) by region, for contracts with two-sided markets in both May and June.

Highlights from the recap include:

–There were (at least) 13 futures contracts traded in June across 3 regions and 3 expirations on 5 dates.   (I’m missing details on one trade)

–OI grew to 51 (from 48). OI remains very front-loaded (1.20 years, average-to-expiration) and remains concentrated in the November expiration cycle (69%).

–Bids and offers generally fell across most regions and expirations.  Offers dropped on Aug ’17 contracts after the June release of CS #’s suggested that Aug contracts had been priced too optimistically.  Lower front contract prices tended to translate into even bigger drops on longer-dated contracts, thereby lowering implied HPA.

– Bid/ask spreads (on contracts that had two-sided markets in both April and May month-end) tightened slightly.

–There are two-sided bids in all contracts out to Nov ’18, but then primarily just bids (as changes in those levels drive closing prices).

–There were no options trades (but a spreadsheet of put option quotes across all regions, and for a variety of strikes,  for X17-X18 contracts was posted in a separate blog

Feel free to contact me ( if you have any questions or trade ideas.



Suggested Offering Levels for Puts

I’ve updated my table (see below) of suggested offering levels for CME Case Shiller puts.  Note that I’ve eliminated puts for Aug ’17 expiration as there’s too little time and volatility to justify prices other than intrinsic value.  Furthermore, some quotes show up as “1.0” in red, as the theoretical value I calculate is below 1.0, but I don’t care to write such tail risk.

Put levels are generally slightly lower than May 31st values as a month has passed, and the referenced futures contracts are flat to higher on the month.  As such, the DENQ18 (the contract with the largest price drop) is 0.8 points lower than last month.

Recall that the CUS, CHI, LAX and NYM can be exchange-traded, but that trading in the other contracts (at least using my broker) needs to be arranged off-market, and then brought to the CME to clear.  While more involved, there is no minimum size limit to the number of contracts that can be traded (as opposed to 20-lot minimum for such off-exchange trades done before Feb 2017).

Feel free to contact me ( if you have a trade, or a trade idea, that you’d like to discuss.

Quotes during pre-/post-market hours, best times for trading focus (day/month)

I’ve noticed a few quotes appearing in the CME futures before the market opens in the morning, and wanted to remind traders how quotes are displayed.  Recall that trading opens at 9:15 (Eastern).  Until then, the only quotes that show overnight are outright orders.   The effect of calendar spreads, and inter-city spreads, both of which drive many of my quotes, only being to show up when the market opens.  So, for example, a wave of 100+ quotes appeared today at 9:15, to supplement the 20-30 outright quotes that had been showing earlier.  (BTW -Trades, particularly important in options, can be arranged off-exchange at any time.)

Market participants are welcomed (encouraged!) to enter quotes at whatever levels they want, but if you’re looking to see whether your quote is highest bid, or lowest offer, it might make sense to wait until after 9:15.

Having said that, I also think that while traders can leave orders all day (GTD) or open-ended (GTC) that until the market gets to the their level, if they’re looking for a reaction in the market, I’ve found the best times are the first and last hour of the trading day.  (BTW – I strongly discourage market orders for more than one contract as the execution level may end up being well through the first price.  Please feel free to call me with interest of greater than the contracts bid (or offered) and I will try to accommodate retail-sized inquiries.)

With such low volume traded here, traders tend to focus on other things between 10 and 3:30.  I’ve not done a study, but as counterparty to the majority of trades, my sense is that more trading takes place in the first and last hour, than the other 5+ hours of the trading day.

Finally, I’d note that traders tend to give attention to these contracts when key housing-related news is announced.  I’ve written before about how in past years >40% of the trading in a month took place in the window from 2 business days before to 2 days after the release of the Case Shiller indices.  Other key events (e.g. unemployment, 25 point moves in the S&P, rate hikes by the Fed) also seem to bring eyeballs to this market.

Feel free to post quotes at any time, at any level, but if you’re looking to execute more quickly, or on more than the lots bid/offered, please consider reaching out to me first (



CME Market moves post-June release of CS #’s

Quotes on the CME Case Shiller futures contracts generally slipped lower after Case Shiller #’s were released Tuesday morning.  The one-day changes(mid-market) may be the best indicator of changes as they incorporates lower offers and lower bids, even if closes don’t change.  (Note that I’m highlighting the Nov ’17 contract here.  Other expirations would likely show similar results. ) As highlighted in red, the CUS and CHI contracts fell the most, with CHI falling more than two points.  LAV was the only contract quoted higher.  (As of 3 PM there was only one trade in HCIQ17, bringing the total trades in June to 12.)

My sense is that the gain in index levels versus one year ago (shown here labeled as “last month’s HPA” for  the May ’17 release vs. May ’16 release, and “this month’s HPA”, shown as the June ’17 release vs. the June ’16 release) were slightly lower in 9 of the 11 contracts.  The two regions that saw a slight uptick in HPA (LAV and SDG) saw the smallest price losses. (Note that I’m using the revised versions of past index levels.  Certain indices -most notably CHI -have been experiencing frequent downward revisions, so that measured gains might be revised lower).

This slide in HPA might be explained by very strong June ’16 vs. May ’16 index values, OR, the sentiment about the importance of low inventory levels is losing steam.  On the second comment, I’d note that the last 4-5 trades this month have all been “bid hit”.  One would have to go back many weeks to find a similar pattern where traders were hitting bids. Perhaps the market got ahead of fundamental value.

Having said that, I’d note that the mid-market prices in the Aug’17 contract (that is, in comparison to the Aug’16 index release) are consistent with YOY price gains expanding from the most recent HPA.   The BOS, CHI, NYM, SFR and WDC contracts are all priced (at mid-market) for YOY index gains of ~1% higher than this month’s (June 17′ vs June ’16 gains).   So, either index HPA, might revert higher next month (as inventory headlines play out), or several of the Aug ’17 contracts are quoted too high (or is it something else?).

Let me know what you you think (at



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 ( 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.




May recap of activity in CME Case Shiller futures posted. See option offerings!

I posted a recap of activity in the CME S&P Case Shiller home price index futures and options for May.  The recap is in the Reports section or one can link here.

The key themes in recap include:

–There were 12 futures contracts traded in April across 6 regions and 4 expirations on 4 dates.

–OI fell to 48 as 21 May contracts expired. OI remains front-loaded (1.46 years, average-to-expiration) and is concentrated in the November expiration cycle (83%).

–Bids were up strongly for the second month in a row across most regions.  Gains are primarily in the shorter expiration contracts with implied HPA gains tapering off dramatically after Nov ’18.

–Bid/ask spreads (on contracts that had two-sided markets in both April and May month-end) widened slightly.

–There are two-sided bids in all contracts out to Nov ’18, but then primarily just bids (as changes in those levels drive closing prices).

–No options trades.

–I’ve introduced suggested put offerings across a wide range of regions and expirations in the separate regional contract pages.  Think of as a template to prompt discussion.  I’m open to quoting other strikes, or calls, in response to specific inquiries.

Net, the CME prices (and this market maker) have been chasing the ever-increasing optimism on the outlook for home prices gains in 2017.   Of interest to me, is the strength in implied home price gains over the next 12 months, versus the lack of enthusiasm (so stronger bids) in longer-dated expirations.  While slower implied HPA might be function of low inventory being resolved over the next few years (either due to construction,  institutional buy-to-rent programs being open to selling, a fear of higher interest rates, or underwater owners getting their head above water as prices rise), my sense is that the lower forward HPA primarily reflects an imbalance between forward buyers and sellers.    That is, for every inquiry I get looking to buy X20 contracts, I get 10 asking about selling.

Beyond that observation, a key takeaway from the recap is my rolling out suggested offering levels on almost 200 puts (11 regions * 6 expirations * 3 strikes).  My focus has been on slightly out-of-the money puts.  I’d love to build a book of inquiries on such combinations, but am open to other expirations, strikes and calls.

Please feel free to contact me ( if you’d like to discuss any aspect of this report.



Update on Options Feb ’18 (Dec ’17 index)

I’ve updated a table of option pricing on the CME Case Shiller futures for Feb ’18 expiration.  I’ve picked Feb ’18 as the index released that month (the value the options/futures will settle on) is the Case Shiller index value for Dec ’17.   Thus we can get into debates not only about year-end projections, but volatility around those forecasts.

I’ve selected strikes that are closer to the futures prices than my April 5th blog, but that are still slightly out-of-the-money, as that seems to be where there’s the most interest.

The other change for the last version of this table is that I’ve included quotes on the four CME contracts that I’m able to post quotes electronically.   I’m able to clear puts on all of the other regional contracts, once a trade has been arranged.

Bids and offers are posted 1×1, and at fairly wide spreads, just to prompt debate about clearing values.  I’m open to facilitating a trade on any combination of puts (e.g. across regions), or for puts and futures.  It’s also possible to trade any other expiration, and any strike (with 5-point intervals), so fee free to contact me ( if you have any questions or trading ideas.




A $100 reward….

Related to accessing a new broker……

I’m in an awkward situation where the CME has rolled out option trading on the Case Shiller home price index futures for certain regions, but I’m not able to post quotes on those new put contracts (i.e. the ones for BOS, DEN, LAV, MIA, SDG, SFR and WDC).  I can post quotes on the four other regions (i.e. CUS, CHI, LAX and NYM) but so far, am only able to arrange option trades off the exchange, before the contract can be opened by my broker, to clear the trade.

So, I’ve tried networking, and I’ve tried social media, so I’m turning to monetary incentives.  I will pay $100 to the first person who can demonstrate to me that their broker can post an electronic quote in a put option in for one of the “new 7” regions, AND, where that broker is willing to open retail accounts.  Provide me to an introduction to such a broker, and the prize is yours, when my account has been opened.

Meantime, I’m open to engaging with others (to include discussion or trades) on puts (or calls) on other real estate indices.  Would you like to discuss a relatively short-dated, slightly out-of-the money put, on a publicly accessible home price index?  Feel free to contact me ( to pursue.