I had a question from a reader that reminded me that the schedule for rolling out of new contracts may not be intuitive to those that don’t follow the contract every day. There are 11 expirations in the CME Case Shiller housing contracts, and when one rolls off, it is replaced with another to always keep 11 expirations open at any time.
Here’s the rules (upon each of four quarterly expirations):
- Nov – New contract five years forward (e.g. Nov ’19 was introduced when Nov ’14 expired)
- Feb – Aug contract 18 months forward
- May- May contract 3 years forward
- August -Feb contract 18 months forward
While the logic may not seem straightforward, given the current set of expirations this rule set will produce a set of 6 consecutive, quarterly contracts that expire over the next 18 months, and annual November contracts that stretch five years forward. Since the Nov contracts are both open the longest, and since they allow for the longest duration hedges, bid/ask spreads tend to be better in the Nov series. In addition, open interest tends to be concentrated in Nov expiration contracts.
So, applying the rules from above, when May ’15 expires, we’ll see a May ’18 contract; when Aug ’15 expires, we’ll see a Feb ’17 contract; and when Nov ’15 expires we’ll get a Nov ’20 contract.
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