CDS options

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Credit default swap options (or "credit swaptions") are options to buy or sell credit default swaps on single name stocks or traded indices.[1]

CDS index options are traded off the two main families of CDS indexes -- the U.S.-based CDX and the European-based iTraxx. They work like U.S. equity index options. They provide users with the right to buy or sell protection at a specified time and spread level off the CDS indices.[2] During periods of low credit activity, CDS options can provide market participants the ability to leverage volatility in a cost-effective way. [3]



References

  1. Fitch Survey: Credit Default Swap CDS —Options: What They Are, Who Is Using Them, and Why. bnet.
  2. Despite reform, CDS options go from toxic to tasty. Marketwatch.
  3. Bloomberg Launches First Benchmark Analytic for CDS Index Options. Bloomberg.