I don't understand what you mean "exchanging price risk for basis risk" - can you give me an example?
Here's an example. Let's go back several years ago to an era when there wasn't NQ or ER2. 99% of Index futures activity was in the S&P. So let's say your portfolio was mostly tech and you're bearish on NDX so you hedge by shorting ES. Not a great hedge sometimes. For instance this year the 500's are still higher YTD(even after this recent collapse) while NDX is down about 5% YTD. An imperfect hedging vehicle can increase risk. Everyone knows the components and weightings of the stocks that comprise an index. We know what price and how much volume those components trade. Thus we have program trading (i.e. Index arb) to act as a check and balance on movement in the contract. Housing futures are missing that all important attribute.
http://www.cme.com/trading/prd/overview_HNG18558.html http://www.cme.com/trading/prd/env/...gover16250.html IB is not offering these yet: "At this time, upper management is considering whether to add this product to our system or not. Please keep posted to the web site for any changes in our product line. I don't see any symbol for trading these yet. Says though "$250 times the S&P/Case-Shiller Metro Area Home Price Indices" so they'll be about $45 - $70,000 for each future. They launched over a week ago. The CME website above still does not list any Time & Sales nor the details under Contract Listing (e.g. WTF is the ticker symbol).
If you want to see them on eSignal then use the appropriate ticker: CUS=Composite Index BOS=Boston CHI=Chicago DEN=Denver LAV=Las Vegas LAX=Los Angeles MIA=Miami NYM=New York SDG=San Diego SFR=San Francisco WDC=Washington, DC With a space and then the contract month: Aug 06 (Q6) and Nov 06 (X6)
The contract listings are here: http://www.cme.com/clearing/clr/lis...s.html?type=hng At this writing, only Miami and L.A. have options, but all 10 city areas have futures. Still no info under Time & Sales. It's been a month now. Anyone know if these are selling, and a broker that handles them?
I agree - very difficult to find information about this ellusive future. I did take some snapshots during live trading on Monday and posted them at the bottom of this page so it looks like there is some activity but still very difficult to find the history associated with that activity. If anybody comes across any other sources please let us know.
MY question... For options to work, don't there need to be people on the other side of the bet? Who would. and who is (For these housing futures)? And for the futures, the same question holds true -- who will buy on the long side? So basically lets say I go short, and am successful - where does the money actually come from? It seems the market maker is forced to sell and buy at an indexed price. So who's holding the other side of every transaction? because these contracts correllate to an index, I'm very curious how the actual money flow works. For stocks and commodity futures, there's always people on both sides, letting the free market dictate a fair price. But on an indexed commodity correllated to an arbitrary # (average of house sales/etc.), where 90% of betters are on one side, how does this fall into the definition of zero sum game?
Theres another thread with a bit of info http://www.elitetrader.com/vb/showthread.php?s=&postid=1106248#post1106248 If you're short the future, someone is long the same contract. The money comes out of their account and goes into yours. Or vice-versa. The clearinghouse and the brokerages adjust it. We could just as well be betting on Barry Bonds' batting average; makes no difference. You do raise a good question though, what if there is nobody who wants the other side of the contract? I guess you just wait in line (and important customers get to cut in line ahead of you). As for the options, note that only 2 of the 11 derivatives actually have the options up and running at this moment. If you dig into the underlying (index numbers published by CSI) you might be surprised to find some indices are still climbing. In theory if its 90% on one side, they could let the price adjust, though yeah, how do they do this if the price is tied to the underlying (at least for the future, maybe for the option this is easier) Not sure exactly how they're handling this.
i'm new to all of this ... i think i need to read a book on market making. anything to recommend? i assumed (probably incorrectly) a market maker is there to fill an order in a prompt time manner even if there is no opposing side of the transaction sitting there with an order already. So if you're at bidding at ask price, then I thought the market maker would fill the order regardless of the presence of an opposing order. His spread is designed to build in for the risk the price might move to his disadvantage until the opposing side buys or sells the shares to finish the other side of the order. Wrong? Or only correct for certain types of securities? Thats why these index priced items must work a little differently. So even a buy order priced at the ask will sit until the market maker has found the other side? (ha.. no 300ms transaction times for housing futures?) So lets say the index goes down 10% while I'm shorting it, and I want to close the contract for a profit. But lets say there are no sellers who I can buy to cover from (due to liquidity problems) - how do I get out of this thing? After all, with an indexed future, the price is locked to the report price, not a free market price.