HPHF_CLT.pdf

Welcome to Home Price Hedging Fund ("HPHF"). HPHF was created to allow approved counterparties a tool to facilitate hedging of home price indices not referenced by CME contracts. To start, this would include the ten remaining components of the Case Shiller 20-city index (i.e. Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle and Tampa) as well as large cities referenced by Freddie Mac Home Price indices.

Since the CME stopped clearing of listed options in Jan. 2020, I will also offer HPHF agreements, structured as deep in-the-money options, on all 20 Case Shiller indices, as well as some Freddie Mac indices. For example, longs will buy calls from HPHF, while "shorts" will buy puts.

Also, more traditional near at-the-money puts and calls, or combinations of options, can be arranged. (See graph below for straddle on Atlanta).

See Options page for trading axes, quotes.

An introduction to the fund can be found in this blog, or in the Resources section below.

* HPHF OTC home price index agreements can be arranged to reference any public home price index. My intent is to focus on year-end index values, and on terms of 1-3 years.
* While Agreements may be referred to as "Forwards" they are structured as options. As such, "longs" will buy deep-in-the-money Calls, and "shorts" will buy deep-in-the-money Puts. As such no user will have a short position -although deep in-the-money puts might trade similar to a short position, over limited price ranges.
* Agreements are structured to boundary conditions on index moves (ranging from +/- 10-20%) capping pay-outs.
* The proceeds from purchase of puts and calls will fund the bounded range of outcomes. That is, all exposures will be collateralized. Collateral will be held by HPHF.
* Agreements (Forwards and Options) cannot be exercised before expiration. Trading out of a position with HPHF is allowed, but liquidity is not guaranteed. All Agreements will auto-exercised at maturity.
* While Absolute Price agreements can be structured, Relative Performance agreements (i.e. the performance of one city versus another, or one city versus a broader index), that offer a more capital-efficient execution, can also be created.

* Before the first agreement, users must submit signed risk disclosure form, a counterparty approval application, and submit the application fee. The first is to deal with KYC and AML issues.  The second is to have some comfort that counterparties will fund agreements.
* No additional funds will be collected from counterparties once options are fully paid for.

* In time, periodic auctions for Agreements may take place when sufficient interest arises from both sides, but to start agreements are likely to be 1:1 where I will take the other side.
* See Trading Axes sections for pending inquiries, or suggest regions that you'd like to discuss (via Contact link).


Please see links below for Resources and Indicative quotes.
Please contact me Contacts section. if you have any questions, or hedges that you'd like to discuss.