There's a Lot Going On Below the Surface of This Quiet Credit Index

Trading Markit's CDX index has become a go-to strategy for big investors who want to take a position on corporate bonds. The CDX.NA.HY, for instance, offers investors the ability to trade a basket of credit default swaps (CDS) offering protection on a bunch of junk-rated U.S. corporate debt. With low levels of liquidity in the cash bond market, trading CDS protection through the CDX can be an easier and cheaper way to go long or short corporate credit than actually buying or selling the debt.

But there's another type of derivative that can be useful for investors wishing to express views in credit. Options written on CDS indexes basically give these investors the right to buy or sell the CDX. The popularity of these credit index "swaptions," as they're sometimes called, means that even though the CDX.NA.HY hasn't been moving much over the past couple of months, there has nevertheless been plenty of action in options tied to the index.