The Case Shiller index values released this morning (covering the period through June) were lower than the mid-market values of the CME Aug 2019 contract in 10 of 11 cases (with BOS the only exception). Recall that the Aug '19 contract settles on today's index values, so this would be consistent with contracts having been priced too high in the run-up to expiration. Further, today's index values were lower than the bid side of the Aug '19 contracts (using Friday's prices) in 7 of the 11 contracts. (The contracts where this happened are highlighted below in red).
This is an unusually high set of outliers/ surprises/ and is the first time in recent memory with so many outliers on one side.
Given the above, it should not be surprising that CME contract prices are lower on the day. The table below shows that the mid-market prices for the (benchmark) Nov '20 contracts are lower for 8 of the 11 regions.
Bid/ask spreads for the Nov '20 contract have been atypically tight for a contract with > 1-year to run. I'd note that before today, all quotes were at least 2x2 (two lots bid versus two lots offered). My intention re-populate larger two-sided quotes (or at least other bids and offers to give the contracts slightly more depth.
With the expiration of the Aug '19 contract, the CME has opened the Feb '21 contract (which references the Dec 2020 index values). This is an expiration that I hope to steer traders (and in particular anyone looking to buy/sell options) as it will fit well with discussions of where home prices might be headed during 2020.
There have been 9 trades done in August including 3 yesterday (all in expiring Aug '19 contracts).
I'd further note that with Aug '19 expiring, there are only four expirations with open interest: Nov '19, Feb '20, Nov '20 and Nov '22. My preference is to focus on trader interest in these four maturities (plus the Feb '21 contract).
Finally with the expiration of Aug '19, there is no open interest in four regions (DEN, LAX, MIA and SDG). I intend to be very open to trade proposals for these regions.
Please feel free to contact me if you have any question about the content of this blog, or have any questions related to home price index hedging.
Thanks, John