Implied volatility on the European iTraxx Crossover hit an all-time low of 35% last week and sparked an uptick in long-dated option buying on the index. Investors viewed the fall on December-dated options as confirmation of fourth quarter stability and in response stacked up on at-the-money options, combined as straddles, with maturities to March. One trader said volumes were five-times that of last quarter. David Pasquier, credit products manager at JPMorgan in London said investors, many of them real-money accounts, were buying put and call options as well as positioning themselves to take advantage of any increase in volatility in the new year. The most popular option strikes were between 300 basis points and 325 bps, with the index trading at around 300, said one trader.
Record Low Vol On CDS Index Sparks Option Buying Spree
