Have credit options taken off and are they set to be the Next Big Thing in the credit derivatives market? The answer rather depends on who you talk to.
For Daniel Berman, head of European credit product management at JPMorgan, the answer is definitely yes. JPMorgan has now traded more than €20 billion in option notional this year in Europe, which is between five and 10 times 2004's level, depending on the sector.
"We are seeing an increasing account base, and a broader range of investors interested in learning about product dynamics and options strategies," he says. "Options on government bonds or equities are relatively standard products in those markets, and what we see now is really just the same product range becoming liquid in credit."
Exponential
He adds that users that were once doing one or two deals a week are now doing 15 or 20. The volumes are much greater than the few hundred million a week that was seen last year, and growth is described, predictably, as exponential.
The explosion in the credit options market has happened over the last six to nine months, says Berman, but the real catalyst, in this as in so many areas of credit derivatives, was the launch of the unified iTraxx credit indices in June of last year.