Implied volatilities on the iTraxx indices are closing in after mushrooming almost 20% in the past month, but the sharp moves in vols have failed to attract players into credit options. The rise in vols across the indices should have been a good opportunity for options playing, traders said, but a lack of liquidity held people back and continues to be a problem which dogs the market (DW, 3/31). "People can't take long-dated positions," noted one trading official. "They wanted to trade in and out every day and you just can't do that with credit options."
Implied volatilities on the iTraxx indices spiked May as a nervous credit market reacted to the global sell-off in equities. Implied volatility for three-month at-the-money options on five-year iTraxx Europe jumped to around 40% from 27% in little more than a month. The rise, however, was slowing down early this week as the stock markets showed signs of stabilizing and the credit derivative indices followed suit.
