JP Morgan recommends option convergence trade

In its latest European credit research report, JP Morgan recommends buying out-of-the-money June iTraxx payer options, partly funded by selling out-of-the money options on the March expiry of the index. This benefits if the two expiries converge. Although implied volatility has fallen recently along with spreads, shorter dater credit options still have higher volatility than longer expiries. There is currently a 7% skew between March and June implied volatilities, with the June option implying 92% volatility and the March expiry at 99%.