HOUSING DERIVATIVES

Housing Futures & Derivatives - S&P/Case-Shiller July 2007 Data

	S&P/Case-Shiller Index - July 2007
	Jul 06	Jun 07	Jun 07R	Jul 07	Jun07 v Jul07	Jun07 v Jul07	Jul06 v Jul07
Bos	177.79	171.30	171.30	171.79	0.49	0.29%	-3.4%	Bos
Chi	167.57	165.96	165.94	166.14	0.20	0.12%	-0.9%	Chi
Den	140.25	138.09	138.09	139.23	1.14	0.83%	-0.7%	Den
LV	234.29	221.86	221.86	219.91	(1.95)	-0.88%	-6.1%	LV
LA	273.85	262.12	262.12	260.84	(1.28)	-0.49%	-4.8%	LA
Mia	278.33	264.89	264.89	260.39	(4.50)	-1.70%	-6.4%	Mia
NY	215.25	208.52	209.13	207.11	(2.02)	-0.97%	-3.8%	NY
SD	249.05	231.37	231.37	229.67	(1.70)	-0.73%	-7.8%	SD
SF	217.63	209.48	209.48	208.64	(0.84)	-0.40%	-4.1%	SF
WDC	249.92	233.52	233.97	231.87	(2.10)	-0.90%	-7.2%	WDC
Comp	226.17	217.07	217.27	215.94	(1.33)	-0.61%	-4.5%	Comp

Source: S&P, Bloomberg

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Derivatives - ABX Making New Lows Again

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

Today, some of the lowest (and financially riskiest) tranches, the BBB-s, made lifetime lows.  The BBB- 06-2 and the BBB- 07-1 settled on their lows, about 35% of issue value.  To quote a customer, it's a race to zero.  Source: Markit.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures & Derivatives - Trading US Housing As A Commodity?

This week delivered two events new to the US housing derivatives market. 

Firstly, the long-awaited extended listings to the CME hosted US housing and options contracts.  These contracts settle against the S&P/Case-Shiller Indexes.  The listings extend to 5 years each November.  Although trading has been light so far, the housing price curve as reflected by the settlements of these contracts clearly show downward pricing pressures going out 4 years.

Secondly, Radar Logic swap markets have started trading.  These over-the-counter contracts allow institutional investors to take positions in the US housing market.  These contracts settle against the Radar Logic RPX Indexes.  As with the CME housing futures market, the pricing in this market shows downward price pressure for several years forward.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures - CME Fact Sheet

The CME has an updated fact sheet for the launch next week of the extended terms of their housing futures and options suite.  Download cme_housing_fact_sheet.pdf.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures & Derivatives - Radar Logic To Begin Trading Housing Swaps Next Week

Radar Logic has announced derivatives trading to begin September 17th.  Six banks are licensed to offer derivative products based on the Radar Logic RPX prices.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures & Derivatives - Housing Futures For Investors and Advisors

SeekingAlpha has an article that looks at using housing futures for hedging.  The article cited the short term expirations of the housing futures as the bad news.  That issue is alleviated starting next week.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures - CME Housing Futures Extensions Next Week

Next week, the CME will list four - five years of housing futures and options trading. On Monday September 17th, investors will be to trade housing contracts that settle in 2009, 2010 and 2011. These CME housing contracts settle against the S&P/Case-Shiller Home Price Indexes.

These contracts will allow investors for the first time to express views on the US housing market using fungible, centrally-cleared contracts for several years forward. This transparency and visibility will create a dynamic, focused trading point for taking positions in US housing.

There is also an over-the-counter (OTC) market for S&P/Case-Shiller Housing Index derivatives for certain institutional users. Another housing index, Radar Logic, will have strong bank support for OTC housing derivatives trading.  Radar Logic swaps will begin trading on Monday Sept. 17th.

The simple fact that five year housing price curves are now going to be visible, accessible and tradable will alter the discussion of housing price direction forever. At some point when the discussion of these transparent housing markets becomes mainstream in the capital markets and publised in the business pages of newspapers, the housing forward prices may influence the buying and selling behavior in the spot housing market -- the tail wagging the dog.

Access to futures prices are through the CME's web site and data vendors like Bloomberg, FutureSource and CQG. Access to trading is made electronically for futures through CME's Globex system and for futures and options through brokers like TFS using the CME's Block Trade facility.  Radar Logic swap markets will be available through OTC brokers (Bloomberg code RADR<GO>).

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures & Derivatives - When Home Prices Peaked

Below is a table that describes the month in which the S&P/Case-Shiller Home Price Index for a particular city made its high price.  Note that June 2007 is the latest housing index released by Standard and Poors.

SPCS Index	Index High	Percent From Index High
Boston	September-05	6.51%
San Diego	November-05	8.20%
Detroit	December-05	15.95%
San Francisco	May-06	4.24%
Washington DC	May-06	7.52%
USA	June-06	3.28%
USA 10	June-06	4.25%
NY Metro	June-06	3.51%
Phoenix	June-06	7.01%
USA 20	July-06	3.69%
Cleveland	July-06	4.18%
Tampa	July-06	8.53%
Denver	August-06	1.58%
Las Vegas	August-06	5.82%
Los Angeles	September-06	4.51%
Minneapolis	September-06	4.12%
Chicago	September-06	1.59%
Miami	December-06	6.03%
Atlanta	June-07	0.00%
Charlotte	June-07	0.00%
Dallas	June-07	0.00%
Portand	June-07	0.00%
Seattle	June-07	0.00%

Source: Bloomberg

Listed futures and options and OTC derivatives are available for trading based upon the S&P/Case-Shiller Home Price Indexes.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures & Derivatives - ABX Index Rebounds

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment that subprime mortgage holdings will perform better as investments.

All tranches AAA, AA and A tranches of the ABX jumped far above their low prints set in August 2007.  For example, the ABX AAA 07-1 series bounced from low of 87.75% up to today's settlement of 94.78%.   The ABX BBBs 07-1 are only marginally higher, perhaps still suffering from the market tops made in housing prices at the end of 2006.   Source: Markit.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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