CDS spread

[archived_user]

Hi guys, just a quick question because it seems that I got confused.
If you have a bond in your portfolio and you want to hedge for credit risk, are you buying or selling the CDS?

 

[archived_user]

Buying. When you buy the CDS (protection), the CDS seller is “long the credit risk”

 

[archived_user]

You’re the CDS buyer (protection leg) and the counter party is the CDS seller (premium leg).

 

[archived_user]

The way I think about it: with a CDS, you are buying/selling the underlying company’s credit.
So if you are long their credit, meaning you don’t expect an issue, you would sell a CDS. If you are short their credit, meaning you think something will or might happen, then you buy a CDS.
Or just think of it as the exact opposite of all the other derivatives. Long = sell, Short = buy