Yesterday, the home price futures markets received an enormous jolt when a 10-lot trade in the RPX contract was followed with a bid for 26,490 contracts. The 188 bid in the Sept 2014 contract represents a notional amount of ~$50mm. (188*$10/point*26,490). The bid was an extreme multiple of any trades, or quotes seen on either the CBOE RPX contract or the CME Case Shiller contract in recent years. (RPX began trading in 2012).
While the bidder may have wanted to send one of several possible messages (anonymously, as RPX is exchange-traded), there’s no question that someone with lots of capital has been following home price futures, and has demonstrated a willingness to post a substantial bid, at market levels.
This bid addresses my not-so rhetorical rant from last month: – “OK, I accept that home price contracts are thinly traded, but with bid/ask spreads at these levels, would you entertain doing a 100 or 1000-lot trade if that size was available on the other side of your interest”. This bid confirms that, at some level, there is institutional interest in trading home price futures.
Of possibly great importance, the order was a bid. I say that as critics of the home price contracts have bemoaned that “everyone’s already long real estate”, that the market is “only good for hedgers”, and that “forward price bids may not be deep enough for us to hedge”. The 188 bid for the Sept 2014 RPX contract is about a 3% premium over the mid-point of the Sept 2012 RPX contract (using Sept/Sept to isolate seasonal factors) so housing and fiscal-cliff bears have an opportunity to sell (or at least offer) index exposure at a premium FOR SIZE. It seems like it’s time for any such bears to take notice and get involved. (See links in the right-and column on my home page for information on the RPX contracts).
I frankly would have liked to see such a bid in the CME Case Shiller contracts both selfishly, and because any such bid could be leveraged into (potentially) large bids for other contracts via calendar and inter-city spread orders. (BTW -given different contract specs, and prices, $50mm notional in the CUS Nov 2014 contract would be ~1250 contracts.) That said, I’m thrilled that the discussion of trading home price futures seems to moved to a new level.
So, if the “depth of market” argument has finally been challenged (and I understand that this might be a one-time occurrence), then institutions and traders, please feel free to contact me (email@example.com) if you’d care to discuss trading of home price futures.