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 (email@example.com) if you’d like to discuss any aspect of this report.