I've updated public quotes for where I'd trade Case Shiller home price index puts options. I've posted them here and on the Options page.
Recall that I've chosen to illustrate option levels using the G20 (Feb 2020) contract as it's about one-year away and it references year-end 2019 Case Shiller numbers. In addition, I've selected strikes are close to index levels. However, puts can be constructed for any expiration strike (at 5-point intervals). Further, while I'm showing CME listed put options here, I'm also open to an OTC agreement on other home price indices. For example, these strikes might work hedgers concerned about a small drop in prices while housing bubble advocates might want to use a deeper-in-the-money strike
I would note that put premiums have fallen since the last update on Feb. 28 and the bid/ask spreads have compressed slightly. Several factors have contributed to these changes.
* Prices on the CME contracts have increased making these puts just slightly more out-of-the-money. Note that the NYM contract is the only one where the mid-market is below spot index (vs. three regions last month).
*There has been a pickup in activity in the CME futures (34 contracts traded MTD) which has resulted in tighter bid/ask spreads on the futures. Tighter spread on futures (in my approach) leads to tighter bid/ask spreads on options.
* I've kept the expiration constant (Feb 2020) so these contracts are one month closer to maturity. Shorter expirations lead to smaller option premiums.
*Finally, my perception is that implied volatility has declined since Feb (when I was closer to collapse and rally in stock prices). Lower vol leads to lower prices.
Please feel free to contact me if you have any question on this blog, or any aspect of heding home price indices.
Thanks,
John