I have three timely features of the Paris home price index futures that I'll review here.
The Paris home price futures contract users (quoted on Euronext) saw the next-to-last index update from Compass on Friday Dec 4th, before the Dec 2020 contract settles in two weeks. That is, the Dec 2020 contract will settle on the index released on Dec 18th.
The Dec 4th value was 11077, and the Dec contracts bracketed that with a bid/ask of 10944/ 11264 last week. I've been trying to stir the pot/ get involved in these contracts and have updated my OTC version of the contracts to 11000/11125.
The graph below shows the historical Paris index, the bids and offers quoted on Euronext, as well as the values I'd quote for OTC agreements. Note that only the Dec 2020 and Mar 2021 contracts had live quotes last week. I'd be willing to trade those, as well as the Dec '21 and Dec '22 exposures. The forward prices I've suggested are less bullish than those projected for some US areas. To the extent anyone wants to swap Paris exposure for a US exposure, let me know.
I tout prices as OTC versions as I've had great frustration trying to open an account with an FCM. Some continue to take a chicken-and-egg approach, i.e. waiting for volume before then open trading to retail users^1, while several other European-based FCMs just seem to have an aversion to opening accounts to US citizens. ( There seem to be issues with taxes). So, I'm offering a $250 reward to anyone who can steer me to a platform that will let me open an account to trade the Paris contracts on the Euronext platform.
My interest in trading the Paris contracts is that I'm aware of both potential buyers and sellers, and at some levels, I'd be willing to take either of an exposure: a) as I'm a big fan of encouraging the use of home price index derivatives as hedging tools, and b ) I think that I can make some money. (BTW -Levels that I'd buy or sell are reflected in the graph above).
In the absence of being allowed to open an account to trade on Euronext, I've steered potential counterparties to my HPHF platform^2 for an OTC agreement. That is, one could add/reduce exposure to Paris home prices in the same way that they could for Portland^3 or Minneapolis^4. For example, exposure to the Compass Paris index could be achieved with an HPHF call with a strike of 9000 and a cap of 12500. A negative exposure would be achieved in buying a put struck at 12500 with a floor of 9000. At the prices shown in the graph, I'd take either side on 100,000 notional exposure. (BTW -More traditional one-sided options with strikes closer to forward levels are also possible. Contact me for levels).
There are a few challenges that are unique to Paris exposure that has me hoping for a futures trade. For example, the Compass Paris index is denominated in Euros, and most natural hedgers might be French. This raises potential currency risks (although none to me if an agreement was quoted in dollars), or KYC/AML issues if the counterparty is outside the US. I could open a bank account to take Euro exposure but that presents it's own potential issues.
Net, though, my attitude remains - what does it take to structure such an agreement, rather than just tossing my hands because there may be roadblocks.
Please brainstorm with me, not only on the level of forward prices, but also on how to open a futures account, or all of the issues associated with an OTC agreement.
Feel free to contact me, if you have feedback on any of the above.
Thanks, John
^1 -There was no OI in the Paris contracts as of Friday Dec 4, and no trades in the last month.
^2- See https://www.homepricefutures.com/hphf for details.
^3- See July 27 blog: https://www.homepricefutures.com/posts/adding-reducing-exposure-to-home-prices-in-portland-and-seattle
^4- See April 1 blog: https://www.homepricefutures.com/posts/hedging-minneapolis