JPMorgan equity strategists back buying call-spread options on British banksBarclays and Royal Bank of Scotland, highlighting investors'expectations of a rally in UK and European bank stocks over the coming months asthe global economic backdrop improves. A call-spread option trade pays off for the investor when a stock rises tobetween the two strike price levels in the "spread" by the time the optionexpires. JPMorgan strategists back such a trade on Barclays due to expire in Februarywith two strike prices between 320 pence and 340 pence - up from Barclays'current share price of around 297 pence. It adds that the trade costs around 3.9pence. Its strategists also expect volatility in the stock - often referred to as"upside skew" - to reduce as the stock continues to rally. "The upside skew continues to flatten with the stock rally, making the callspreads an appealing way to express the bullish fundamental view," they write ina research note. JPMorgan backs a similar call-spread strategy for Royal Bank of Scotlandshares, which its analysts upgrade to "overweight" from "neutral". It recommends a call-spread on RBS with an expiry date of March 2013 and twostrike prices between 390-420 pence, with RBS shares currently trading at around360 pence. It says this option trade costs 8 pence. "Our analysts believe that RBS has made the most significant balance sheetprogress among the UK banks since 2008," writes JPMorgan. Reuters messaging rm://sudip.kargupta.thomsonreuters.com@reuters.net