With the February release of the Case Shiller #’s for December 2013 only a few days away (Tues. 2/25 8:15 AM Chicago) I thought that it might be a good time to review quotes for the expiring Feb ’14 (G14) contract. Recall that the settlement prices for the G14 contracts will be the index values announced on the 25th. As such, it can be argued that traders in the front contracts are expressing views on what they think the index values will be.
In quarterly contract expirations over the last 3-4 years traders have tended to bracket the actual Case Shiller index value (i.e. bidding below the actual CS #’s and offering above) on about 70-80% of the contracts. In the other (20-30%) cases the actual Case Shiller values were either higher than than last offer, or lower than the last bid. Sometimes these “outliers” were the result of either very tight bid/ask spreads (e.g. 0.20), index revisions (WDC had 3-4) or just situations were a trader had a strong bid (or offer) that went unchallenged. (There have been contract expirations where all 11 markets bracketed the actual CS #’s and other expirations where 5-6 contracts settled outside the final bid/asks spread, which suggests that surprises are lumpy).
My point is that while the expiring contracts represent expectations of the index numbers to be released, that there have been opportunities for those with strong views of the upcoming Case Shiller values to profit, even on the last trading day of a contract.
Here’s quotes for the G14 contract from yesterday (Thurs Feb 20)
Mid-market values are, on average, slightly lower than the Jan. 2014 CS indices (using the CUS change of -0.2%). The “warm region” markets of LAV, MIA, SDG and SFR all have higher mid/Jan values (and LAX is at 0.0%), while the CHI and WDC markets have the biggest percentage drops (and the other “cold region” markets (BOS, DEN, NYM) are all also negative.
Of interest are the changes in the Dec/Jan/Feb values between Dec ’12 and Dec ’13. Some strong markets (e.g. LAX) have seen slower increases over the last few months, while some weak markets (e.g. NYM) are declining at much slower rates.
Feel free to contact me (email@example.com) if you have any G14 themes that you’d like to have touted. There are a handful of intercity (G14 v G14) quotes working as well as one-year calendar spreads (G14 vs. G15) in all 11 contracts.