Basics: InterCity Spreads -converted to relative % gains

I continue to believe that while traders may approach outright markets with some caution that they can be more aggressive when expressing views of relative performance.  That is, they may not have a precise view about how much the LAX indices might rise over the next year or two but (if their views are consistent with inter-city (IC) spread quotes) they may have stronger views about how much the LAX index will under-perform 9or not!?!) the 10-city index (or some other comparison, e.g. the SDG or SFR indices).

This table organizes IC spreads in a way that converts dollar priced quotes into relative percent gains.

IC March 11For example, the IC market in HCI_LAXX14 translates into % gains where the -34.4 bid is consistent with HCI index in Nov ’14 being ~1.2% higher than the LAX index, while the the -32.0 offer is consistent with the HCI index being ~2.5% higher.  (You need to work out the % gains using the bid and offer on the front contract, the IC spreads and the spot levels for both contracts.)

I’ve highlighted the HCI vs. all ten components for those markets where I am aware of IC quotes that are inside outright bid (the bid side of the front contract)/ offer (the offered side of the second contract) spread.  IC spreads are possible (and potentially revealing) within sectors of the country (e.g. BOS v NYM, or LAX v SDG).

I would read from this table that IC spreads are consistent with views that LAX will underperform the 10-city index for Nov ’14, while SFR will outperform across the 3 listed expirations shown.

I’m open to discussing hearing other interpretations, and would encourage traders to form views and post levels on other “pairs”.  Feel free to contact me at if you care to discuss some trade ideas.