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OTCStreaming has been mining credit index options raw data from private runs to publicly available information (SDR and Clearing data) on behalf of its users for over a year. The obvious next step was to implement an option pricing model to deliver even more useful material for users to exploit.

The vanilla credit index option model was introduced in January 2021 to infer implied volatility and standard Greeks (CS01, Delta and Vega) on each market tick. The CS01 is computed as the option premium change for a 1 basis point shock to the underlying index, the Delta as the ratio of the option CS01 to the index CS01 and the Vega as the option premium change for a 1% shock to the implied volatility — ref Figure 1.

With the introduction of this new pricing model, options benefit from the whole OTCStreaming capacity to simplify OTC market data analysis such as price discovery (using best bid or best offer on volatility) or real-time tracking of implied volatility trading levels. OTCStreaming was able to leverage its framework originally designed for index and single name credit default swaps: identical data structure, web application and APIs (Excel add-in and REST API) for options and vanilla credit default swaps.

On an average trading day, a Private Instance user will obtain up to 30,000 ticks on about 1,600 option tickers typically received from 8–10 dealers. OTCStreaming can display in real time the best implied volatility bid or offer by crossing the latest ticks sent by the user’s dealers — ref Figure 2.

OTCStreaming uses a simple and easy way to remember tickers for credit index options. The index ticker and the current traded index series are enriched by the options maturity — the options standard expiry is the third business Wednesday of any month — , the strike (in price or spread) and the option type : either PAY for payers swaptions or REC for receivers swaptions. For instance, see Figure 3, CDXIG535–2107–125-REC is a receiver swaption, i.e. the right to sell CDXIG535 at 125bps at July 2021 expiry.

Using the OTCStreaming mnemonic, digging data on any particular strike and expiry is straightforward. The OTCStreaming pricing model can accommodate options with an underlying level (and option strikes) expressed as a cash price (like CDX HY or CDX EM for instance) as well as options with an underlying level (and option strikes) expressed as a running spread (like iTraxx indices or CDX IG). In both cases, the underlying diffusion model is applied to a renormalized index upfront fee. Please contact the OTCStreaming team to get its white paper on the OTCStreaming option model.

Exploiting options’ quotes and trade levels to derive trading signals, conduct back tests or optimize trade execution has never been easier. The new feature is available on both Private and Public Instances, but a Private Instance user would naturally benefit most from OTCStreaming’s capacity to mine the huge amount of information received from dealers.

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