I've posted a recap of activity in the CME S&P Case Shiller home price index contracts during November. It's on the Resources page, or you can link here. Here are the key highlights:
–There were 14 futures contracts traded during Nov 2019,across 4 expirations,and 5 regions. This brings YTD activity to 142, the highest volume through Nov over the last five years. (page 8).
–No options have traded since the 7 lots in June.
–Prices were modestly lower across most regions except LAX, MIA, and NYM.
–Bid/ask spreads were slightly tighter. (page 5).
–Third-party activity picked up with activity in NYM during the month, but most trading tended to be around the release of monthly CS#’s.
–HCI, BOS, NYM and SFR contracts have dominated trading with 80% of all trades (across 11 regions) and >20 lots traded YTD in each.
–Open interest remains concentrated in four expirations (X19, G20, X20 and X22) but I have also been touting G21 (using it as a benchmark for options and Intercity spreads.(page 9).
–Only two regions have no OI (MIA, and SDG). (I'd be very open to posting a trade in either).
–I continue to tout OTC home price index agreements on other regions. See www.homepricefutures.com/HPHF for details. (I have been tweeting - @HomePriceFuture - selected home price index agreements (including for Canadian cities) but I expect this market to be primarily reverse inquiry for now. That said, I'd be happy to take small exposures (on either side) in almost any city, to develop volume.
My key message (on page 5) is that my approach to market making will be to focus on a smaller set of contracts. That is, I'm going to be providing quotes in 6-7 expirations, rather than all 11, as I believe that with thinly traded contracts that "Less is More". I'll support the front four contracts (as those are useful for expectations, year-end projections for 2019 and 2020, and people like to trade them) and then a short-, medium-term, and longer-dated set of contracts. Since there is already open interest in the Nov 2020 (X20) and Nov 2022 contracts, it will be those two contracts, plus the newly opened Nov '24 contract. My sense is that for the contracts to develop depth, there needs to be a limited number of benchmark term contracts, rather that having potential interest diffused over multiple expirations.
Having three benchmark contracts will also allow more focus on (and hopefully discussion of) other ways of trading those contracts, to include calendar and inter-city spread trades.
The table below shows a partial impact of this approach. Bid/ask spreads for X20, G21 and X22 are all tighter than for contracts with similar terms to maturity, over the last few years.
The Nov '24 contract was just launched last week. I'll be happy to entertain inquiries on this 5-year term contract, but am more likely to try and broker any larger inquiries.
Feel free to contact me if you have any questions about this blog, or any aspect of hedging home price indices, or if you have cities that you like to hedge.
Thanks, John