As Nov. expiration approaches

The last day of trading for the Nov 2013 contract is Monday.   (Recall that the Case Shiller indices will be released on Tuesday and that the Nov 2013 contract will settle on those numbers.)  With only a few days to go I thought that I’d tweak quotes and post a market status.

The attached table shows bid. ask, and mid-market levels for the 11 CME futures contracts (from earlier this morning).  All bid-ask spreads are <= 2.0 points, although none is tighter than 1.4 points.  In past expirations we’ve often seen one contract where value is being more hotly “debated” with a tighter bid/ask spread.  Given that open interest for Nov. is 81 contracts (including 46 in CHI) there may be some traders looking to unwind (or roll forward) Nov positions.  I’d expect some outright and short calendar spread trading over the next few days.  The Nov /Feb calendar spread markets are wide at this point (not shown) probably due to the combination of changing seasonal factors (warm vs. cold states) and concerns about the underlying momentum in home prices.  (Look for a blog on Nov /Feb spreads in the next few days.)

Nov 2013 expiration

The Nov 2013 mid-market contract values are consistent with news headlines touting continued (but slowing) gains in all regional indices (at least those traded on the CME).  The LAV, SDG and SFR will lead the year-over-year increases, while the Northeast areas of BOS, NYM and WDC will show as the laggards.

Finally, note that with the expiration of the Nov 2013 contract, the CME will introduce a new contract for Nov 2018.   I would expect that most contracts roll out with 2-5% implied HPA gains over mid-2017 levels.  With gains implied by such HPA, the forward level of CS indices will move even closer to full recovery versus 2006 “highs” in selected key regions.  I would expect some push-back, increased interest in hedging as we get to “back to past high levels”.