Credit Option Strategy

[AllLevelsPass]

Binary credit option provides value when the issue or issuer goes to default.
True or false

 

[CFAMonster]

partial true. it works also with downgrades.

 

[AllLevelsPass]

Does it work with Default or downgrade?
I thought Credit Default Swaps worked with defaults?

 

[olfy]

i’d say binaries are suited for a specific event. binary meaning two possible scenarios. default or not, downgrade or not, aso
spread widenings (either specific or market related) would be better covered by spread options. IMO

 

[nikko0355]

binary credit options can have two different strikes. one based on default or one based on downgrage.
binary means that it is either in the money or not in the money. i.e. you lose your premium paid or you exercise the option.