CME Housing Futures

Discussion in 'Financial Futures' started by guy2, May 23, 2006.

Which way is the US housing market going?

  1. The market will continue to rise

    5 vote(s)
  2. The market will flatten out

    8 vote(s)
  3. The market will drop

    35 vote(s)
  4. Don't know or don't care

    8 vote(s)
  1. (1) Who is on the other side of your trade? Probably a professional trader, maybe a retail customer. (2) Your profit comes from the clearing corporation which debits the losing traders from the price your trade was filled at. (3) 9 traders can be "long" and 1 trader can be "short" in an illiquid contract. As the price fluctuates, they're credited and debited accordingly. That's the "zero-sum" aspect of the money flow. (4) The contracts don't trade actively because there isn't a clear idea of what their exact theoretical value is. The first (August) expiration ought to be interesting.
    #31     Jun 18, 2006
  2. This makes sense.
    So basically, the chicken and the egg.
    I can only short it if there is someone there who has already gone long.

    So there can't be 5000 guys shorting it with 1000 going long.
    #32     Jun 18, 2006
  3. luh3417


    scriabinop23: I already recommended Baird's "Options Market Making" in another thread, but I too would like to find the equivalent "Futures Market Making" book.

    (3) I'm not sure I agree; I still guess you wait in line until someone takes the full other end of the contract, rather than get 1/9th the gain/loss. I actually called CME and talked to someone about this but am still confused.

    (4) The other problem is that, unlike stocks, you can't easily go long or short the actual underlying, which in this case is a house in the target area or target sample. I suspect this also disrupts the ability to create synthetic options (a put is a call) to balance out your greeks, and as a result banks aren't writing options.

    In the other thread nazzdaqq described this market as "scary" wonder what they meant by that?
    #33     Jun 19, 2006
  4. (1) Chicken and egg? I don't believe you understand "open interest" correctly. In order for you to sell -short, there has to be a willing buyer for you to sell to. It might be an existing position holder OR a new participant in the market. (2) If 5,000 contracts are offered at-the-market when only 1,000 are "bid", the market has to drop to a lower level to absorb the excess 4,000. With open interest, there can be 1000 accounts on the short-side and 5000 accounts on the long-side of the market. I don't know if that answers your question? (3) The "scary" thing I referred to in a related thread was the low open interest figures for these contracts. Getting out of a loser might be painful if nobody wants to take your trade.......AT ANY PRICE!
    #34     Jun 19, 2006

  5. 1) When I said 4000/1000 etc.. I meant that basically for every contract or share to be sold short, it must be borrowable. And for it to be borrowed, someone before must have already gone long on it. And inversely as you say, for it to be sold short, there must also be a new buy order as well.

    2) i wasn't referring to order volumes and there relationship to bid/ask spreads and movements.

    3) agreed. and unlike other future contracts, you don't actually take delivery on anything. just cash settled. now if there was a house somewhere that could be delivered, now we're talking.. but of course I'd want to see the closet space, backyard, and the kitchen. hopefully granite counters at these contract prices. :)
    #35     Jun 19, 2006
  6. There's no borrowing occuring in a futures market. You are writing contracts. A seller always matches a buyer. So someone does not go long before someone goes short, it happens at the sametime.

    Also there are countless futures contracts which are cash settled, including eurodollars, contracts on any of the major indices, etc. And these are some of the most liquid products in the world. How these are different is that the underlying is near impossible to mimick as an investment.
    #36     Jun 19, 2006
  7. guy2


    67.74% of poeple voting on this poll, as I type this, think that the housing market in the US is going to drop.

    Here is a chart showing the historic and futures together using this week's futures' prices for the housing index: Blended Housing Futures Chart
    #37     Jul 18, 2006
  8. luh3417


    As of mid-July, is it the case that:
    1. IB doesn't offer this product
    2. Volume is very low
    3. Pabst was right (see above)
    #38     Jul 18, 2006
  9. guy2


    How is that missing from the Housing futures? It's all there as well. At the launch of the CME Housing Futures the creators of the index discussed the possibility of a dedicated set of professionals who would be able to do exactly that. i.e. arb the underlying against the future. Just like they do with S&P500 cash and future.
    #39     Jul 18, 2006
  10. luh3417


    Pabst said this in October 2005, and again in May 2006. Now that the product launched and has been out for 6 weeks, has low volume, and IB won't touch it, we have to stop bullshitting about what should be, and try to explain what is.

    It appears that there is low volume (please correct me if I'm wrong about this). A likely explanation is "zero institutional participation".

    IB is not offering this. A likely explanation is "chicken and egg".

    If someone has a better explanation please let me know.
    #40     Jul 18, 2006