iTraxx Europe – options can influence volumes

Fundamental factors rightly garner the most attention when investors try to ascertain why markets move. Even if one regards markets as perfectly efficient and favour index tracking, it would be foolhardy to completely ignore real world influences when managing money.

But the credit markets, in particular, warrant analysis of technical undercurrents that can shape spread direction. Credit indices are tradeable instruments are therefore subject to their own supply and demand dynamics. Most are familiar with the semi-annual roll of the indices, which typically causes higher than average trading volumes and spread movements that can deviate from the underlying credit risk. Perhaps less well known, however, are the trading patterns that typically occur around the monthly option expiry.