Funds tap out-of-the-money payers on iTraxx Main

Paola Lamedica
By Hazel Sheffield
14 May 2014

Hedge funds and real money investors are increasingly buying out-of-the-money payer options on the iTraxx Main across May, June and July expiries, with strikes up to 150% OTM. Payer spreads in the iTraxx Main are also being actively traded by investors, while some hedge funds are looking at taking similar exposures through bearish risk reversals.

Paola Lamedica, credit sector specialist at BNP Paribas in London, said that bearish risk reversals, where an investors sells the call and buys the put, haven’t been seen in a while because the payer smile was steep relative to the receiver smile. Investors use risk reversals if they ...

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