I've posted a recap of activity in the CME Case Shiller futures contracts for October. Readers can find the recap in the Resources section or link here.
It was a very quiet month (in terms of activity) yet a VERY busy month in terms of price moves and new ideas.
Highlights include:
–Only two lots traded in October, and there were 32 days between trades –both records dating back to June 2019. The rolling 12-month tally of trades dropped to ~280 lots.(page 10)
–Prices were much higher during the month. (pages 4, 6-8) Nov contract prices continued their rise from late September. (page 5)
–There were two-side quotes on 78 contracts (of 110) at month-end.
–Bid/Ask spreads tightened dramatically across all regions/ expirations.
While the decline in volume has been very frustrating, it seems to reconcile with the notion that most users here have been hedgers looking to protect against a decline in prices. However, given the near universal bullish sentiment on home price -over the next 3-4 months -and given how the Nov '20/ Feb '21 prices have been quoted at relatively small gains versus spot, it seems plausible that either hedgers opted not to hedge, or that -if they thought about it -prices were too low.
I have brought Nov '20 contract prices up to levels that I believe will not be "surprised" by the updated Case Shiller numbers to be released on Nov 24. I suspect that prices on longer contracts still have room to increase, but concerns about COVID, and the end of forbearance, continue to weigh on my bids.
With the relative quiet I launched an old idea in October:
In mid-October, I introduced a platform to facilitate OTC options on 20 Case Shiller indices (Page 13). (See my Oct 15 blog for details. ) Recall that the CME discontinued options trading in January. This new program will use OTC agreements on my HPHF (Home Price Hedging Fund) platform. A key feature is the inclusion of floors to cap payouts, and limit risks (to make these more appealing, and capital-friendly) to put writers. Quotes will be updated 1-2x/week on the options page . I've started with near-spot strikes on Feb '22 puts to focus interest and to explore clearing levels for volatility. Please feel free to contact me if you'd like to discuss any options strategies.
In addition, I continue to hear of interest, and possible activity about home price index hedging from other countries. While there is a home price index contract for Paris (traded on Euronext), I've not been able to open an account at an FCM that will let me trade (Help!). Until then, I'm open to trading the contract OTC for any who might have an interest.
Also, my sense is that there are needs to hedge in Canada, England and Australia. I'd be open to discussing possible hedging agreements on local indices.
Net, while things have been slow, the need for hedging (both in the US and elsewhere) will re-appear in time. Feel free to contact me (before there's a more obvious reason to hedge) if you have a strategy you like to explore.
Thanks, John