The biggest news in ETF-land over the next month could be the launch of the MacroShares home price ETFs. Or, maybe we shouldn't say ETFs.

MacroShares is going to great lengths to remind people that these are not technically ETFs; they're exchange-traded products, or ETPs. Understanding that difference is the key to understanding how these products will work—and where they should be priced.

I suspect that a lot of ink will be spilt over the coming months trying to do just that. Because they are different from traditional ETFs, and because the initial pair of MacroShares was poorly handled, MacroShares are widely misunderstood. The prospectus for these things reads like Finnegan's Wake, and the structure is unique, adding to the confusion.

But that confusion is not needed. When you get right down to it, these products are pretty simple and will work well if people understand what they are designed to do.

Here's a primer.

Home Price ETFs

The new MacroShares Major Metro Housing Up (ticker: UMM) and Major Metro Housing Down (ticker: DMM) ETPs are designed to deliver 300% and -300% of the return of the leading national home price index, the S&P/Case-Shiller 10-City Composite Home Price Index, over a specific period of time.

The last part of that sentence is critical.

Most ETFs are designed to track the performance of an index on a daily basis. The S&P 500 SPDR (NYSEArca: SPY), for instance, is designed to track the S&P 500's return today, tomorrow and forever. The fund does that by holding all of the securities in the index. Arbitrage mechanisms exist to ensure that SPY stays close in value to the S&P 500 on a minute-by-minute basis.

UMM and DMM are different. For one, they don't hold "housing." All they hold is Treasuries. They deliver the return of the Case-Shiller index because they are contractually obligated to shift those Treasuries back and forth between the two funds based on the direction of the index: If the index goes up, Treasuries go from DMM to UMM; if it goes down, the opposite happens.

This unique structure—often called a "teeter-totter"—is what lets MacroShares track nontypical financial metrics like "house prices." Theoretically, they could be tied to anything.

The Importance Of The Time Horizon

The key thing to understand about UMM and DMM is that they are designed to "expire" on Nov. 25, 2014. At that point, investors will receive a payment based on 300% of the change in the S&P Case-Shiller index over the intervening time period.

To be more specific, both UMM and DMM start with a net asset value of $25/share. That NAV is linked to the level of the Case-Shiller index as of Dec. 31, 2008. On Nov. 25, 2014, investors will be paid based on 300% of the change in the index from Dec. 31, 2008 through Aug. 31, 2014. (The end payout will be based on the August 2014 reading because the index is published with a two-month lag.)

Where should UMM and DMM trade between now and November 2014?

Simple: They should trade based on where investors expect the index to be on Aug. 31, 2014.

It's really that simple. It's like a futures contract: Everything that happens between now and expiration is mostly irrelevant.

How so? First, if the index moves 33% one way or the other in the intervening time period, the funds will be shut down and liquidated, because one of the funds will have a NAV of zero.

Second, the funds are designed to shift Treasuries back and forth on a quarterly basis based on interim readings of the index. Therefore, the amount of Treasuries each fund holds—and the amount of interest income it generates—will be influenced by the interim movements.

But that's on the edges. Really, all that matters is 2014.

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