It's been ~two weeks since my last post so I wanted to note/update you on a few things.
First, Happy Holidays to all! Best of luck balancing a desire to be with family with the Covid surge. Like others, I can't wait for 2020 to end, and for us to explore a "new normal".
Second, I've spent much of my trading energy the last two weeks with a new role of market maker on the (just launched) CME NASDAQ Veles Water Index Contracts. So far, only the front contract (Jan '21) has traded but there's been activity almost every day. Feel free to contact me if you'd like to learn more.
Third, I'm still looking to get involved in the Paris home price futures contracts. Can anyone steer me to an FCM who will allow a US citizen to open an account? ($250 reward). I'm trying to facilitate an inquiry from a hedger on longer-dated contracts. I'd sell Dec '21 or Dec '22 exposure in OTC fashion (via an HPHF agreement).
It happens that the Dec 2020 contract expired this week with the final index value (of 11099) being just inside both my OTC asked side and posted offers on the Euronext contract. (BTW - I'm open to trying this on other cities around the world and have received inquires on Toronto, London, Hong Kong and Wellington. Let me know if you have a city that you'd like to add/reduce exposure to, and I'll investigate to see if there's a reference index that can be used).
Fourth, I've longed believed that options are a more suitable product for retail users looking to hedge home price risk. I sense that the downside of even less liquidity, is dwarfed by 1) the known amount of downside risk (the premium), and 2) the lack of need to precisely determine the forward level. I've been trying to post "City of the Day" tweets, and many of them have taken the form of puts, calls or some combination of both. For example, here's a graph for Atlanta (referencing the Case Shiller NSA index) from earlier this month illustrating a straddle. I'm open to either side of puts and calls on any city with a public Case Shiller or Freddie Mac home price index.
Fifth, I've tried to reconcile the lack of volume on the CME Case Shiller futures with a theory that either users see no reason to hedge in this bullish housing market (particularly with CME forward prices not reflecting the enthusiasm of many forecasts), and/or that potential longs are kicking themselves for missed opportunities to buy dips and don't want to chase this market. While CME contracts have rarely traded (but quotes are still actionable) activity in housing related stocks (e.g. builders ITB, lenders RWT, BTR companies MLRN, IBuyers Z, index providers CLGX, housing components WY, and home renovation enablers HD) have all had big moves. I'd love to hear from readers as to any interesting plays in stocks that they see as worth debating.
Feel free to contact me on any of the above, or if you have any questions related to using home price index derivatives in hedging home price exposoures.
Again, happy holidays, and best wishes for a healthy 2021.
John