I've updated a tool I used for many years during more stable markets, to illustrate the relative clearing levels of one CME Case Shiller home price index contract versus another. While not high-tech, converting all prices and price gains (or losses) into percentage moves prompted me (along with higher bids from third parties) to revise quotes on many intermediate-dated CME contracts. The net result was a move higher in prices today, that matched the gains for all of February.
For example, the bar for BOS Feb '22 is the result of the BOSG22 bid/divided by the spot index(256.0/250.33) as the base of the bar, the mid market/divided by the spot index(257.55/250.33) as the midpoint, and the ask divided by the spot index (259/250.33) as the top.
One result (and goal) was to price each Feb '22 contract with a bid that was at least 2% higher than the spot level. Since today's spot levels are the indices released in Feb 2021, this translates into YOY gains across the Feb '22 and Feb '23 contracts (shown below). The 2% gains seem to be far below expectations, but prior to today (see month-end recap) bids had been an even lower percent of spot. Further, while I had been using some "rule of thumb" pricing changes, differences in the level of the contract (e.g. CHI =154.45 while LAX= 317.64) made linear adjustments wrong to use. Hence, the importance of revisiting implied percentage gains. Net, some CHI prices actually dropped, while some LAX prices are up ~ 3 points.
The floor of 2% higher bids in all contracts seems very at odds with the different rates of gains across regions over the last year. So, please use this as a starting point to suggest level for intercity spreads. I'd be happy to entertain inquires in percentage form (e.g. I think LAV index will perform 1% better (or worse?) than the LAX index over the next year, and I'll come back with an IC quote to address your inquiry.
That is, I'm willing to post 1x1 (one lot bid vs one lot offered) on many contracts to provide executable levels, but I'm using that, and I'm primarily interested in, what you the readers think clearing levels should be (for outright and spread trades).
Feel free to contact me if you have any questions, trade ideas, or just would like to learn more about using home price index derivatives in hedging strategies.
Thanks,
John